-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KqA2NC3H7ycY7SEtlT26UZE8hsitEUa1oYY4MXQ1hOXXb4ERmGVymc69EXAA5+dd EBMV42eHAkqL03PH7dPbZA== 0000912595-98-000005.txt : 19980402 0000912595-98-000005.hdr.sgml : 19980402 ACCESSION NUMBER: 0000912595-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MID AMERICA APARTMENT COMMUNITIES INC CENTRAL INDEX KEY: 0000912595 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 621543819 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12762 FILM NUMBER: 98584348 BUSINESS ADDRESS: STREET 1: 6584 POPLAR AVE STREET 2: STE 340 CITY: MEMPHIS STATE: TN ZIP: 38138 BUSINESS PHONE: 9016826600 MAIL ADDRESS: STREET 1: 6584 POPLAR AVE STREET 2: SUITE 340 CITY: MEMPHIS STATE: TN ZIP: 38138 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission File Number: 1-12762 MID-AMERICA APARTMENT COMMUNITIES, INC. (Exact Name of Registrant as Specified in Charter) TENNESSEE 62-1543819 (State of Incorporation) (I.R.S. Employer Identification Number) 6584 POPLAR AVENUE, SUITE 340 MEMPHIS, TENNESSEE 38138 (Address of principal executive offices) (901) 682-6600 Registrant's telephone number, including area code Securities registered pursuant to Section 12 (b) of the Act: Name of Exchange Title of Each Class on Which Registered Common Stock, par value $.01 per share New York Stock Exchange Series A Cumulative Preferred Stock, par New York Stock value $.01 per share Exchange Series B Cumulative Preferred Stock, Series New York Stock B, par value $.01 per share Exchange Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] [ ] No Yes Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, (based on the closing price of such stock ($28.19 per share), as reported on the New York Stock Exchange, on March 13, 1998) was approximately $469,000,000 ( for purposes of this calculation, directors and executive officers are treated as affiliates). The number of shares outstanding of the Registrant's Common Stock as of March 13, 1998, was 18,553,931 shares, of which approximately 1,923,087 were held by affiliates. MID-AMERICA APARTMENT COMMUNITIES, INC. TABLE OF CONTENTS Item Page PART I 1. Business 1 2. Properties 5 3. Legal Proceedings 9 4. Submission of Matters to Vote of Security Holders 9 PART II 5. Market for Registrant's Common Equity and Related 9 Stockholder Matters 6. Selected Financial Data 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 8. Financial Statements and Supplementary Data 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17 PART III 10. Directors and Executive Officers of the Registrant 17 11. Executive Compensation 19 12. Security Ownership of Certain Beneficial Owners and 22 Management 13. Certain Relationships and Related Transactions 23 PART IV 14. Exhibits, Financial Statement Schedule and Reports on 24 Form 8-K PART I ITEM 1. BUSINESS THE COMPANY Mid-America Apartment Communities, Inc. (the "Company") is a Memphis, Tennessee-based self-administered and self-managed umbrella partnership real estate investment trust, ("REIT") ("UPREIT") which owns and operates 115 apartment communities containing 30,912 apartment units in 13 states (the "Communities"), has 2,660 apartment units under construction in 7 new communities and 5 additions to existing communities, and a further 804 apartment units in various stages of development. The Company has entered into definitive agreements to acquire three additional apartment communities containing 624 apartment units, of which negotiations are still in progress. Founded in 1977 by George E. Cates, the Company's Chairman of the Board of Directors and Chief Executive Officer, the Company's predecessor grew from an operator of a single 252-unit apartment community in Memphis, Tennessee into a fully-integrated owner and operator of 5,580 apartment units in 22 apartment communities in four southeastern states immediately prior to the Company's initial public offering in February 1994 (the "Initial Offering"). Since the Initial Offering, the Company's portfolio has increased by 93 apartment communities containing 25,332 apartment units, including 1) 12 apartment communities containing 3,212 apartment units acquired in the Company's merger with America First REIT, Inc. ("AFR") in June 1995 (the "AFR Merger") for an aggregate value of approximately $111 million (as measured by Common Stock issued and AFR debt assumed) and 2) 30 apartment communities containing 7,691 apartments acquired in the company's merger with Flournoy Development Company and related partnerships ("FDC") on November 25, 1997 (the "FDC Merger") for an aggregate value of $423 million. The FDC Merger resulted in the establishment of Flournoy Service Corporation ("FSC"), the name of which was later changed to Flournoy Development Corporation, of which the Company owns 100% of the non- voting common stock, specifically to own and operate the third-party construction, brokerage and management activities formerly conducted by FDC. At least 95% of the after tax cash flow after intercompany interest expense of this subsidiary is distributed to Mid-America Apartments, L.P., a Tennessee limited partnership (the "Operating Partnership") through its ownership of the non-voting common stock in FSC, with the 5% balance to the owners of FSC's common stock, consisting of Mr. Cates and John F. Flournoy, the Vice-Chairman of the Company. FSC did not make a distribution to Messrs. Cates and Flournoy in 1997 and does not currently anticipate a distribution in 1998. The operations of FSC include the management of 43 properties with 4,971 apartment units owned by third party investors, and the development and construction of properties for third parties. The Company believes that this structure is permitted under the terms of the Internal Revenue Code and also provides the most economic benefit to its shareholders. The Company's business is conducted principally through the Operating Partnership. The Company is the sole general partner of the Operating Partnership, holding, as of December 31, 1997, 181,844 Common Units or a 1% general partnership interest in the Operating Partnership. The Company's wholly-owned qualified REIT subsidiary, MAC II of Delaware, Inc., a Delaware corporation, is a limited partner in the Operating Partnership and, as of December 31, 1997, held 15,736,248 Common Units, or 81.1% of all outstanding Common Units. In connection with the formation of the Operating Partnership and the Initial Offering, the Operating Partnership issued 2,460,413 Common Units to the former owners of Communities contributed to the Operating Partnership. The Common Units held by such former owners are redeemable by the holders, at their option, for shares of Common Stock on a one-for-one basis or, at the Company's option, for cash. The Company has filed a shelf registration statement relating to the offer and sale of the Common Units by the holders thereof. As of December 31, 1997, such former owners held 2,384,097 Common Units. In subsequent transactions and acquisitions of properties, including in the FDC Merger, an additional 553,205 Common Units have been issued, resulting in a total of 2,937,302 Common Units being owned by outside investors. Certain Communities are owned by limited partnerships of which the Operating Partnership and the Company or a wholly owned qualified REIT subsidiary are the only partners. The Company, directly or through seven wholly owned qualified REIT subsidiaries, owns 19 Communities. The Company also has established Mid-America Capital Partners, L.P., a single-purpose entity formed in 1997 to own 26 apartment communities containing 5,947 apartment units, of which the Operating Partnership owns a 99% limited partnership interest and the Company, through a subsidiary, owns a 1% General Partnership interest OPERATING PHILOSOPHY MID-SIZE MARKET FOCUS. The Company focuses on owning, operating, developing, constructing and acquiring apartment communities in mid- size southeastern and Texas cities. The Company believes that these markets generally have been less susceptible to apartment overbuilding during past real estate investment cycles, and the Company believes that apartment communities in these markets offer attractive long-term investment returns. The Company seeks to develop and acquire apartment communities in its existing markets and selected new markets where it believes there is less competition for acquisitions or new construction from other well-capitalized buyers. The Company believes it can acquire apartment units at a significant discount to estimated replacement cost in these markets and through its experience construct and develop apartments at a reasonable investment cost to generate higher returns on investment than is available in large metropolitan areas. INTENSIVE MANAGEMENT FOCUS. The Company strongly emphasizes on-site property management. Particular attention is paid to opportunities to increase rents, raise average occupancy rates, and control costs, with property managers being given the responsibility for monitoring market trends and the discretion to react to such trends. DEDICATION TO CUSTOMER SERVICE. Management's experience is that maintaining a consistently high level of customer satisfaction leads to greater demand for the Company's apartment units, higher occupancy and rental rates, and increased long-term profitability. The Company, as part of its intense management focus, has implemented a practice of having highly trained property managers and service technicians on-site at each of the Communities. Management undertakes frequent resident surveys and focus groups, in order to measure customer satisfaction. DECENTRALIZED OPERATIONAL STRUCTURE. The Company's operational structure is organized on a geographic basis. The Company's property managers have overall operating responsibility for their specific Communities. Property managers report to area managers or regional managers who, in turn, are accountable to the Company's President. Management believes that its decentralized operating structure capitalizes on specific market knowledge, increases personal accountability relative to a centralized structure and is beneficial in the acquisition, redevelopment and development process. GROWTH STRATEGIES The Company seeks to increase earnings per share and operating cash flow to maximize shareholder value through a balanced strategy of internal and external growth. INTERNAL GROWTH STRATEGY. Management's goal is to maximize its return on investment in each Community by increasing rental rates and reducing operating expenses while maintaining high occupancy levels. The Company (i) seeks higher net rental revenues by enhancing and maintaining the competitiveness of the Communities and (ii) manages expenses through its system of detailed management reporting and accountability in order to achieve increases in operating cash flow. The steps taken to meet these objectives include: * empowering the Company's property managers to adjust rents in response to local market conditions and to concentrate resident turnover in peak rental demand months; * implementing programs to control expenses through investment in cost- saving initiatives, such as the installation of individual apartment unit water and utility meters in certain Communities; * ensuring that, through monthly inspections of all Communities by senior management and prompt attention to maintenance and recurring capital needs, the Communities are properly maintained; * improving the "curb appeal" of the Communities through extensive landscaping and exterior improvements and repositioning Communities from time to time to maintain market leadership positions; * investing heavily in training programs for its property-level personnel; * compensating all employees through performance-based compensation programs and stock ownership programs; and * maintaining a hands-on management style and "flat" organizational structure that emphasizes senior management's continued close contact with the market and employees. EXTERNAL GROWTH STRATEGY. The Company's external growth strategy is to acquire and develop additional apartment units and, when apartment communities no longer meet the Company's long-term strategic objectives or investment return goals, to dispose of those Communities. Through the Company's umbrella partnership REIT ("UPREIT") structure, the Company has the ability to acquire apartment communities through the issuance of UPREIT Units in tax- deferred exchanges with owners of such properties. Since the Initial Offering, the Company has grown by 25,332 apartment units, an increase of approximately 454% over the number of apartment units immediately prior to the Initial Offering. Typical attributes of apartment communities which the Company seeks to acquire are: * well-constructed properties having attractive locations, potential for increases in rental rates and occupancy, potential for reductions in operating costs and acquisition prices below estimated replacement cost; * properties with opportunities for internal growth through (i) market repositioning by means of property upgrades which typically include landscaping, selective refurbishing and the addition of amenities and (ii) realizing economies of scale in management and purchasing; and * properties located in the Company's existing markets and mid-size southeastern and Texas metropolitan areas having favorable market characteristics. The Company develops new apartments when it believes it can achieve an attractive return on investment substantially above the rate of return of acquisitions. In November the Company acquired, through the FDC Merger, Flournoy Development Company, a builder and developer of multifamily apartments with 30 years of experience owning, managing, developing and building apartments. As a result of this merger, the Company has significantly expanded its commitment to new development. The Company has established higher investment return criteria for new development than it maintains for acquisitions and generally expects that its new development program will generate higher stabilized returns on investment than most acquisition opportunities. Since the Initial Offering, the Company has completed the following development projects: * 122 apartment units constructed at the Woods of Post House in Jackson, Tennessee in close proximity to three other Communities; * 24 additional apartment units at the Reflection Pointe apartment community in Jackson, Mississippi; and * 32 additional apartment units at the Park Haywood apartment community in Greenville, South Carolina. In 1997, the Company substantially completed construction of a 234- unit expansion of the 384-unit Lincoln on the Green apartment community at the Tournament Players' Club at Southwind in Memphis, Tennessee. The development of expansion for Lincoln on the Green was managed successfully and began by Flournoy Development Company prior to the merger with the Company. The Company currently has a development pipeline of 3,466 apartments that are in various stages of construction and development, of which 1,690 are anticipated to be completed in 1998. It is likely that additional opportunities will be identified for development in late 1998 and 1999. COMPLETED ACQUISITIONS. During 1997, the Company acquired the following apartment communities (the "Completed Acquisitions") containing an aggregate of 3,314 apartment units (dollars in millions): NUMBER OF DATE OF CONTRACT PROPERTY MARKET UNITS ACQUISITION PRICE (1) - ---------------- ---------------- ------ ----------- ---------- Howell Commons Greenville, SC 348 1/15/97 $ 13.0 Balcones Woods Austin, TX 384 3/18/97 15.8 Westside Creek I Little Rock, AR 142 3/28/97 6.1 Fairways at Hartland Bowling Green, KY 240 3/31/97 10.4 Woodhollow Jacksonville, FL 450 4/10/97 16.7 The Woods Austin, TX 278 4/15/97 10.0 Hunters' Ridge Jacksonville, FL 336 5/29/97 15.2 Austin Chase Macon, GA 256 8/5/97 14.0 Westside Creek II Little Rock, AR 166 9/24/97 6.5 Woodwinds Aiken, SC 144 9/30/97 5.0 Hermitage at Beechtree Cary, NC 194 11/3/97 8.9 Sterling Ridge Augusta, GA 192 11/13/97 7.7 Colony at South Park Aiken, SC 184 11/25/97 7.5 ----- ------- Total 3,314 $ 136.8 ===== ======= (1) Excluding additional customary closing costs, including expenses and commissions. COMPETITION All of the Company's Communities are located in developed areas that include other apartment communities. Occupancy and rental rates are affected by the number of competitive apartment communities in a particular area. The Company's properties compete with numerous other multifamily properties, the owners of which may have greater resources than the Company and whose management may have more experience than the Company's management. Moreover, single-family rental housing, manufactured housing, condominiums and the new and existing home market provide housing alternatives to potential residents of apartment communities. RECENT DEVELOPMENTS RECENT ACQUISITIONS Since December 31, 1997, the Company has acquired the following apartment communities (the "Recent Acquisitions") containing an aggregate of 392 apartment units (dollars in millions): NUMBER ACQUISITION CONTRACT PROPERTY MARKET OF UNITS DATE PRICE - ---------- -------------- -------- ----------- -------- Walden Run McDonough, GA 240 2/5/98 $ 13.4 Van Mark Huntsville, AL 152 2/26/98 5.1 -------- -------- Total 392 $ 18.5 ======== ======== The Company funded the cash required to consummate the Recent Acquisitions with borrowings under the Company's bank line of credit. PROPOSED ACQUISITIONS The Company has entered into definitive agreements to purchase the 200-unit Eagle Ridge apartments in Birmingham, Alabama, the 204- unit Village Apartments at Carrollwood in Tampa, Florida and the 220-unit Georgetown Grove Apartments in Savannah, Georgia. The Company plans to fund the cash required to consummate the Proposed Acquisitions with issuance of Umbrella Partnership units, borrowings under the Credit Line and assumption of existing mortgages. There are remaining issues to negotiate on these contracts and there can be no assurance that these acquisitions will close. DEVELOPMENT The Company's Board of Directors has approved the development of three apartment communities totaling 702 units located in Montgomery, Alabama, Murfreesboro, Tennessee, and Panama City, Florida; the Board has also approved the development of a 124-unit addition to the Company's St Augustine property in Jacksonville, Florida. The total estimated cost of these projects is $50.5 million to be invested in 1998 and 1999. The Company has a total of 1,762 apartments in pre-development or in- depth feasibility review. If all these are developed, together with the 1,070 apartments under construction and the 634 apartments under construction and lease-up, the total planned investment in new development in 1998 is $118 million, with an additional $70 million to complete the projects in 1999. The Company has several additional projects in earlier stages of feasibility study, and it anticipates that the additional apartment communities will be approved for development later in 1998 which will require additional funding in 1999. DISTRIBUTION INCREASE In January 1998, the Company raised its quarterly distribution to common shareholders from $.535 per share to $.55 per share, effective with its distribution paid on January 30, 1998. ITEM 2. PROPERTIES The Company seeks to acquire and develop apartment communities appealing to middle and upper income residents in mid-size cities in the southeastern United States and Texas. Approximately 71% of the Company's apartment units are located in Georgia, Florida, Tennessee, and Texas markets. The Company's strategic focus is to provide its residents high quality apartment units in attractive community settings, characterized by extensive landscaping and attention to aesthetic detail. The Company utilizes its experience and expertise in maintenance, landscaping, marketing and management to effectively "reposition" many of the apartment communities it acquires to raise occupancy levels and per unit average rentals. The average age of the Communities at December 31, 1997 was 12.2 years. The following table sets forth certain operating data regarding the Company for the periods indicated excluding development communities. 1997 1996 1995 ------- ------- ------- Apartment units at year end 30,468 19,280 18,219 Average monthly rental per apartment unit at year end $568 $529 $508 Average occupancy for the year 93.9% 95.4% 95.2% The following table presents information concerning the properties at December 31, 1997:
Year Year Management Property Location Completed Commenced Paddock Club-Huntsville Huntsville, AL 1989 1997 Calais Forest Little Rock, AR 1987 1994 Napa Valley Little Rock, AR 1984 1996 Westside Creek I Little Rock, AR 1984 1997 Westside Creek II Little Rock, AR 1986 1997 Whispering Oaks Little Rock, AR 1978 1994 Tiffany Oaks Altamonte Springs, FL 1985 1996 Marsh Oaks Atlantic Beach, FL 1986 1995 Paddock Club - Brandon Brandon, FL 1997 1997 Anatole Daytona Beach, FL 1986 1995 Cooper's Hawk Jacksonville, FL 1987 1995 Hunter's Ridge at Deerwood Jacksonville, FL 1987 1997 Lakeside Jacksonville, FL 1985 1996 Paddock Club-Jacksonville I Jacksonville, FL 1989 1997 Paddock Club-Jacksonville II Jacksonville, FL 1996 1997 Paddock Club-JacksonvilleIII Jacksonville, FL 1997 1997 St. Augustine Jacksonville, FL 1987 1995 Woodbridge at the Lake Jacksonville, FL 1985 1994 Woodhollow Jacksonville, FL 1986 1997 Paddock Club-Lakeland I Lakeland, FL 1988 1997 Paddock Club-Lakeland II Lakeland, FL 1990 1997 Savannahs at James Landing Melbourne, FL 1990 1995 Paddock Park-Ocala I Ocala, FL 1986 1997 Paddock Park-Ocala II Ocala, FL 1988 1997 Paddock Club-Tallahassee I Tallahassee, FL 1990 1997 Paddock Club-Tallahassee II Tallahassee, FL 1995 1997 Belmere Tampa, FL 1984 1994 Sailwinds at Lake Magdalene Tampa, FL 1975 1994 Hidden Oaks I Albany, GA 1979 1997 Hidden Oaks II Albany, GA 1980 1997 Regency Club Albany, GA 1983 1997 High Ridge Athens, GA 1987 1997 Shenandoah Ridge Augusta, GA 1975/1984 1994 Sterling Ridge Augusta, GA 1986 1997 Westbury Creek Augusta, GA 1984 1997 Fountain Lake Brunswick, GA 1983 1997 Park Walk College Park, GA 1985 1997 2000 Wynnton Columbus, GA 1983 1997 Riverwind Columbus, GA 1983 1997 Whisperwood Columbus, GA 1980-86 1997 Whisperwood Spa & Club Columbus, GA 1988 1997 Willow Creek Columbus, GA 1968-78 1997 Hollybrook Dalton, GA 1972 1994 Whispering Pines I LaGrange, GA 1982 1997 Whispering Pines II LaGrange, GA 1984 1997 Westbury Springs Lilburn, GA 1983 1997 Austin Chase Macon, GA 1996 1997 The Vistas Macon, GA 1985 1997 Wildwood I Thomasville, GA 1980 1997 Wildwood II Thomasville, GA 1984 1997 Hidden Lake I Union City, GA 1985 1997 Hidden Lake II Union City, GA 1987 1997 Three Oaks I Valdosta, GA 1983 1997 Three Oaks II Valdosta, GA 1984 1997 Southland Station I Warner Robins, GA 1987 1997 Southland Station II Warner Robins, GA 1990 1997 Terraces at Towne Lake Woodstock, GA 1997 1997 Fairways at Hartland Bowling Green, KY 1996 1997 Paddock Club Florence Florence, KY 1994 1997 Lakepointe Lexington, KY 1986 1994 Mansion, The Lexington, KY 1987 1994 Village, The Lexington, KY 1989 1994 Stonemill Village Louisville, KY 1985 1994 Canyon Creek St. Louis, MO 1987 1994 Riverhills Grenada, MS 1972 1985 Advantages, The Jackson, MS 1984 1991 Crosswinds Jackson, MS 1988/1989 1996 Lakeshore Landing Jackson, MS 1974 1994 Pear Orchard Jackson, MS 1985 1994 Pine Trails Jackson, MS 1978 1988 Reflection Pointe Jackson, MS 1986 1988 Somerset Place Jackson, MS 1981 1995 Woodridge Jackson, MS 1987 1988 Hermitage at Beechtree Cary, NC 1988 1997 Woodstream Greensboro, NC 1983 1994 Corners, The Winston-Salem, NC 1982 1993 Fairways at Royal Oak Cincinnati, OH 1988 1994 Colony at Southpark Aiken, SC 1989/91 1997 Woodwinds Aiken, SC 1988 1997 Tanglewood Anderson, SC 1980 1994 The Fairways Columbia, SC 1992 1994 Paddock Club-Columbia I Columbia, SC 1989 1997 Paddock Club-Columbia II Columbia, SC 1995 1997 Highland Ridge Greenville, SC 1984 1995 Howell Commons Greenville, SC 1986/88 1997 Paddock Club - Greenville Greenville, SC 1996 1997 Park Haywood Greenville, SC 1983 1993 Spring Creek Greenville, SC 1984 1995 Runaway Bay Mt. Pleasant, SC 1988 1995 Park Place Spartanburg, SC 1987 1997 Hamilton Pointe Chattanooga, TN 1989 1992 Hidden Creek Chattanooga, TN 1987 1988 Steeplechase Chattanooga, TN 1986 1991 Windridge Chattanooga, TN 1984 1997 Oaks, The Jackson, TN 1978 1993 Post House Jackson Jackson, TN 1987 1989 Post House North Jackson, TN 1987 1989 Williamsburg Village Jackson, TN 1987 1994 Woods at Post House Jackson, TN 1995 1995 Cedar Mill Memphis, TN 1973/1986 1982/1994 Clearbrook Village Memphis, TN 1974 1987 Crossings Memphis, TN 1974 1991 EastView Memphis, TN 1974 1984 Glen Eagles Memphis, TN 1975 1990 Greenbrook Memphis, TN 1986 1988 Hickory Farm Memphis, TN 1985 1994 Kirby Station Memphis, TN 1978 1994 Lincoln on the Green Memphis, TN 1988 1994 Lincoln on the Green II Memphis, TN 1997 1997 McKellar Woods Memphis, TN 1976 1988 Park Estate Memphis, TN 1974 1977 River Trace I Memphis, TN 1981 1977 River Trace II Memphis, TN 1985 1977 Savannah Creek Memphis, TN (8) 1989 1996 Sutton Place Memphis, TN (8) 1991 1996 Winchester Square Memphis, TN 1973 1977 Brentwood Downs Nashville, TN 1986 1994 Park at Hermitage Nashville, TN 1987 1995 Balcones Woods Austin, TX 1983 1997 Stassney Woods Austin, TX 1985 1995 Travis Station Austin, TX 1987 1995 Woods Austin, TX 1977 1997 Redford Park Conroe, TX 1984 1994 Celery Stalk Dallas, TX 1978 1994 Lodge at Timberglen Dallas, TX 1984 1994 MacArthur Ridge Irving, TX 1991 1994 Westborough Katy, TX 1984 1994 Lane at Towne Crossing Mesquite, TX 1983 1994 Cypresswood Court Spring, TX 1984 1994 Green Tree Place Woodlands, TX 1984 1994 Township Hampton, VA 1987 1995 Total Approximate Average Rentable Unit Number Area Size Property Location Of Units (Square Ft.)(Square Ft.) Paddock Club-Huntsville Huntsville, AL 200 211,576 1,058 Calais Forest Little Rock, AR 260 194,928 750 Napa Valley Little Rock, AR 240 183,216 763 Westside Creek I Little Rock, AR 142 148,030 1,042 Westside Creek II Little Rock, AR 166 156,646 944 Whispering Oaks Little Rock, AR 206 192,422 934 1,014 875,242 863 Tiffany Oaks Altamonte Springs, FL 288 234,224 813 Marsh Oaks Atlantic Beach, FL 120 93,280 777 Paddock Club - Brandon Brandon, FL 308 358,600 1,164 Anatole Daytona Beach, FL 208 149,136 717 Cooper's Hawk Jacksonville, FL 208 218,400 1,050 Hunter's Ridge at Deerwood Jacksonville, FL 336 294,888 878 Lakeside Jacksonville, FL 416 344,192 827 Paddock Club-Jacksonville I Jacksonville, FL 200 216,016 1,080 Paddock Club-Jacksonville II Jacksonville, FL 120 132,280 1,102 Paddock Club-JacksonvilleIII Jacksonville, FL 120 130,544 1,088 St. Augustine Jacksonville, FL 400 304,400 761 Woodbridge at the Lake Jacksonville, FL 188 166,000 883 Woodhollow Jacksonville, FL 450 342,162 760 Paddock Club-Lakeland I Lakeland, FL 200 217,704 1,089 Paddock Club-Lakeland II Lakeland, FL 264 283,365 1,073 Savannahs at James Landing Melbourne, FL 256 238,592 932 Paddock Park-Ocala I Ocala, FL 200 202,282 1,011 Paddock Park-Ocala II Ocala, FL 280 290,496 1,037 Paddock Club-Tallahassee I Tallahassee, FL 192 208,000 1,083 Paddock Club-Tallahassee II Tallahassee, FL 112 124,720 1,114 Belmere Tampa, FL 210 202,440 964 Sailwinds at Lake Magdalene Tampa, FL 798 667,084 836 5,874 5,418,805 923 Hidden Oaks I Albany, GA 128 132,096 1,032 Hidden Oaks II Albany, GA 112 114,624 1,023 Regency Club Albany, GA 100 80,200 802 High Ridge Athens, GA 160 186,608 1,166 Shenandoah Ridge Augusta, GA 272 222,800 819 Sterling Ridge Augusta, GA 192 156,232 814 Westbury Creek Augusta, GA 120 106,998 892 Fountain Lake Brunswick, GA 100 118,046 1,180 Park Walk College Park, GA 124 112,776 909 2000 Wynnton Columbus, GA 72 66,056 917 Riverwind Columbus, GA 44 40,304 916 Whisperwood Columbus, GA 506 610,876 1,207 Whisperwood Spa & Club Columbus, GA 348 380,044 1,092 Willow Creek Columbus, GA 285 246,668 866 Hollybrook Dalton, GA 158 188,640 1,194 Whispering Pines I LaGrange, GA 120 123,904 1,033 Whispering Pines II LaGrange, GA 96 98,572 1,027 Westbury Springs Lilburn, GA 150 137,744 918 Austin Chase Macon, GA 256 293,016 1,144 The Vistas Macon, GA 144 153,792 1,068 Wildwood I Thomasville, GA 120 123,904 1,033 Wildwood II Thomasville, GA 96 101,152 1,054 Hidden Lake I Union City, GA 160 171,192 1,070 Hidden Lake II Union City, GA 160 154,000 963 Three Oaks I Valdosta, GA 120 123,904 1,033 Three Oaks II Valdosta, GA 120 129,200 1,077 Southland Station I Warner Robins, GA 160 186,704 1,167 Southland Station II Warner Robins, GA 144 168,704 1,172 Terraces at Towne Lake Woodstock, GA 264 286,968 1,087 4,831 5,015,724 979 Fairways at Hartland Bowling Green, KY 240 251,180 1,047 Paddock Club Florence Florence, KY 200 207,036 1,035 Lakepointe Lexington, KY 118 90,614 768 Mansion, The Lexington, KY 184 138,720 754 Village, The Lexington, KY 252 182,716 725 Stonemill Village Louisville, KY 384 324,008 844 1,378 1,194,274 867 Canyon Creek St. Louis, MO 320 312,592 977 Riverhills Grenada, MS 96 81,942 854 Advantages, The Jackson, MS 252 199,136 790 Crosswinds Jackson, MS 360 443,200 1,231 Lakeshore Landing Jackson, MS 196 171,156 873 Pear Orchard Jackson, MS 389 338,400 870 Pine Trails Jackson, MS 120 98,560 821 Reflection Pointe Jackson, MS 296 254,856 861 Somerset Place Jackson, MS 144 126,848 881 Woodridge Jackson, MS 192 175,034 912 2,045 1,889,132 924 Hermitage at Beechtree Cary, NC 194 169,776 875 Woodstream Greensboro, NC 304 217,186 714 Corners, The Winston-Salem, NC 240 173,496 723 738 560,458 759 Fairways at Royal Oak Cincinnati, OH 214 214,477 1,002 Colony at Southpark Aiken, SC 184 174,800 950 Woodwinds Aiken, SC 144 165,188 1,147 Tanglewood Anderson, SC 168 146,600 873 The Fairways Columbia, SC 240 213,720 891 Paddock Club-Columbia I Columbia, SC 200 218,872 1,094 Paddock Club-Columbia II Columbia, SC 136 144,720 1,064 Highland Ridge Greenville, SC 168 144,000 857 Howell Commons Greenville, SC 348 292,840 841 Paddock Club - Greenville Greenville, SC 208 212,104 1,020 Park Haywood Greenville, SC 208 156,776 754 Spring Creek Greenville, SC 208 182,000 875 Runaway Bay Mt. Pleasant, SC 208 177,840 855 Park Place Spartanburg, SC 184 195,312 1,061 2,604 2,424,772 931 Hamilton Pointe Chattanooga, TN 362 256,716 711 Hidden Creek Chattanooga, TN 300 259,152 864 Steeplechase Chattanooga, TN 108 98,602 913 Windridge Chattanooga, TN 174 238,704 1,372 Oaks, The Jackson, TN 100 87,512 875 Post House Jackson Jackson, TN 150 163,640 1,091 Post House North Jackson, TN 144 144,724 1,005 Williamsburg Village Jackson, TN 148 121,412 820 Woods at Post House Jackson, TN 122 118,922 975 Cedar Mill Memphis, TN 276 297,794 1,079 Clearbrook Village Memphis, TN 176 150,400 855 Crossings Memphis, TN 80 89,968 1,125 EastView Memphis, TN 432 356,480 825 Glen Eagles Memphis, TN 184 189,560 1,030 Greenbrook Memphis, TN 1,031 934,490 906 Hickory Farm Memphis, TN 200 150,256 751 Kirby Station Memphis, TN 371 310,173 836 Lincoln on the Green Memphis, TN 384 293,664 765 Lincoln on the Green II Memphis, TN 182 241,280 1,031 McKellar Woods Memphis, TN 624 589,776 945 Park Estate Memphis, TN 82 95,751 1,182 River Trace I Memphis, TN 244 205,780 843 River Trace II Memphis, TN 196 194,864 994 Savannah Creek Memphis, TN (8) 204 237,200 1,162 Sutton Place Memphis, TN (8) 252 267,600 1,062 Winchester Square Memphis, TN 252 301,409 1,196 Brentwood Downs Nashville, TN 286 220,166 770 Park at Hermitage Nashville, TN 440 392,480 892 7,504 7,008,475 934 Balcones Woods Austin, TX 384 313,756 817 Stassney Woods Austin, TX 288 248,832 864 Travis Station Austin, TX 304 249,888 822 Woods Austin, TX 278 213,970 770 Redford Park Conroe, TX 212 153,744 725 Celery Stalk Dallas, TX 410 552,220 1,347 Lodge at Timberglen Dallas, TX 260 226,124 870 MacArthur Ridge Irving, TX 248 210,393 848 Westborough Katy, TX 274 197,264 720 Lane at Towne Crossing Mesquite, TX 384 277,616 723 Cypresswood Court Spring, TX 208 160,672 772 Green Tree Place Woodlands, TX 200 152,168 761 3,450 2,956,647 766 Township Hampton, VA 296 248,048 838 Total 30,468 28,082,174 910 Average Average Rent Per Occupancy Unit at % at December 31,December 31, Property Location 1997 1997 Paddock Club-Huntsville Huntsville, AL $595 96.0% Calais Forest Little Rock, AR $561 96.2% Napa Valley Little Rock, AR $543 90.0% Westside Creek I Little Rock, AR $631 93.7% Westside Creek II Little Rock, AR $589 95.2% Whispering Oaks Little Rock, AR $500 94.2% $559 93.8% Tiffany Oaks Altamonte Springs, FL $563 97.9% Marsh Oaks Atlantic Beach, FL $525 98.3% Paddock Club - Brandon Brandon, FL $747 97.0% Anatole Daytona Beach, FL $544 97.6% Cooper's Hawk Jacksonville, FL $644 96.6% Hunter's Ridge at Deerwood Jacksonville, FL $570 93.8% Lakeside Jacksonville, FL $559 91.8% Paddock Club-Jacksonville I Jacksonville, FL $704 90.0% Paddock Club-Jacksonville II Jacksonville, FL $728 95.0% Paddock Club-JacksonvilleIII Jacksonville, FL $751 59.0% St. Augustine Jacksonville, FL $528 90.3% Woodbridge at the Lake Jacksonville, FL $593 95.2% Woodhollow Jacksonville, FL $566 92.9% Paddock Club-Lakeland I Lakeland, FL $648 97.0% Paddock Club-Lakeland II Lakeland, FL $650 96.0% Savannahs at James Landing Melbourne, FL $575 96.9% Paddock Park-Ocala I Ocala, FL $603 94.0% Paddock Park-Ocala II Ocala, FL $653 94.0% Paddock Club-Tallahassee I Tallahassee, FL $660 94.0% Paddock Club-Tallahassee II Tallahassee, FL $679 86.0% Belmere Tampa, FL $603 98.1% Sailwinds at Lake Magdalene Tampa, FL $533 96.9% $601 94.1% Hidden Oaks I Albany, GA $430 95.0% Hidden Oaks II Albany, GA $432 96.0% Regency Club Albany, GA $388 84.0% High Ridge Athens, GA $743 96.0% Shenandoah Ridge Augusta, GA $442 86.0% Sterling Ridge Augusta, GA $529 95.3% Westbury Creek Augusta, GA $540 93.0% Fountain Lake Brunswick, GA $748 81.0% Park Walk College Park, GA $623 94.0% 2000 Wynnton Columbus, GA $431 96.0% Riverwind Columbus, GA $432 95.0% Whisperwood Columbus, GA $598 95.0% Whisperwood Spa & Club Columbus, GA $594 95.0% Willow Creek Columbus, GA $462 92.0% Hollybrook Dalton, GA $578 93.0% Whispering Pines I LaGrange, GA $553 83.0% Whispering Pines II LaGrange, GA $552 94.0% Westbury Springs Lilburn, GA $631 99.0% Austin Chase Macon, GA $646 96.9% The Vistas Macon, GA $583 90.0% Wildwood I Thomasville, GA $470 98.0% Wildwood II Thomasville, GA $509 98.0% Hidden Lake I Union City, GA $626 95.0% Hidden Lake II Union City, GA $616 90.0% Three Oaks I Valdosta, GA $519 92.0% Three Oaks II Valdosta, GA $537 94.0% Southland Station I Warner Robins, GA $603 87.0% Southland Station II Warner Robins, GA $624 93.0% Terraces at Towne Lake Woodstock, GA $765 96.0% $572 93.1% Fairways at Hartland Bowling Green, KY $554 92.1% Paddock Club Florence Florence, KY $716 84.0% Lakepointe Lexington, KY $531 98.3% Mansion, The Lexington, KY $528 96.7% Village, The Lexington, KY $560 96.4% Stonemill Village Louisville, KY $552 88.5% $573 91.9% Canyon Creek St. Louis, MO $525 94.1% Riverhills Grenada, MS $392 85.4% Advantages, The Jackson, MS $445 95.2% Crosswinds Jackson, MS $604 95.8% Lakeshore Landing Jackson, MS $500 95.9% Pear Orchard Jackson, MS $547 97.2% Pine Trails Jackson, MS $491 85.8% Reflection Pointe Jackson, MS $556 92.9% Somerset Place Jackson, MS $491 95.8% Woodridge Jackson, MS $513 93.2% $524 94.3% Hermitage at Beechtree Cary, NC $648 94.8% Woodstream Greensboro, NC $528 93.1% Corners, The Winston-Salem, NC $532 95.8% $561 94.4% Fairways at Royal Oak Cincinnati, OH $592 96.3% Colony at Southpark Aiken, SC $548 97.0% Woodwinds Aiken, SC $580 88.2% Tanglewood Anderson, SC $515 89.9% The Fairways Columbia, SC $563 95.8% Paddock Club-Columbia I Columbia, SC $689 96.0% Paddock Club-Columbia II Columbia, SC $735 93.0% Highland Ridge Greenville, SC $479 95.2% Howell Commons Greenville, SC $497 95.1% Paddock Club - Greenville Greenville, SC $697 84.0% Park Haywood Greenville, SC $487 92.3% Spring Creek Greenville, SC $505 96.2% Runaway Bay Mt. Pleasant, SC $655 93.8% Park Place Spartanburg, SC $601 80.0% $574 92.4% Hamilton Pointe Chattanooga, TN $455 94.2% Hidden Creek Chattanooga, TN $489 86.3% Steeplechase Chattanooga, TN $539 92.6% Windridge Chattanooga, TN $657 91.0% Oaks, The Jackson, TN $484 95.0% Post House Jackson Jackson, TN $567 93.3% Post House North Jackson, TN $566 95.9% Williamsburg Village Jackson, TN $523 98.0% Woods at Post House Jackson, TN $634 95.1% Cedar Mill Memphis, TN $552 96.7% Clearbrook Village Memphis, TN $495 96.6% Crossings Memphis, TN $618 100.0% EastView Memphis, TN $490 96.3% Glen Eagles Memphis, TN $556 94.0% Greenbrook Memphis, TN $498 92.9% Hickory Farm Memphis, TN $504 97.0% Kirby Station Memphis, TN $560 98.1% Lincoln on the Green Memphis, TN $586 91.4% Lincoln on the Green II Memphis, TN $681 42.9% McKellar Woods Memphis, TN $443 98.4% Park Estate Memphis, TN $673 97.6% River Trace I Memphis, TN $496 95.0% River Trace II Memphis, TN $533 95.0% Savannah Creek Memphis, TN (8) $590 99.5% Sutton Place Memphis, TN (8) $566 99.2% Winchester Square Memphis, TN $575 93.7% Brentwood Downs Nashville, TN $633 94.1% Park at Hermitage Nashville, TN $588 91.6% $537 93.5% Balcones Woods Austin, TX $656 96.4% Stassney Woods Austin, TX $585 94.1% Travis Station Austin, TX $537 96.4% Woods Austin, TX $671 95.0% Redford Park Conroe, TX $488 90.6% Celery Stalk Dallas, TX $640 93.9% Lodge at Timberglen Dallas, TX $574 94.6% MacArthur Ridge Irving, TX $696 96.8% Westborough Katy, TX $502 97.4% Lane at Towne Crossing Mesquite, TX $521 95.6% Cypresswood Court Spring, TX $510 91.8% Green Tree Place Woodlands, TX $566 94.5% $584 94.9% Township Hampton, VA $571 88.5% Total $566 93.6% Encumbrances at December 31, 1997 Mortgage Principal Interest Maturity Property Location (000's) Rate Date Paddock Club-Huntsville Huntsville, AL -(2) -(2) -(2) Calais Forest Little Rock, AR $5,610 8.915% 12/01/99 Napa Valley Little Rock, AR -(9) -(9) Westside Creek I Little Rock, AR -(9) -(9) Westside Creek II Little Rock, AR $4,958 8.760% 10/01/06 Whispering Oaks Little Rock, AR $3,000 8.915% 12/01/99 $13,568 Tiffany Oaks Altamonte Springs, FL -(9) -(9) Marsh Oaks Atlantic Beach, FL -(9) -(9) Paddock Club - Brandon Brandon, FL -(2) -(2) Anatole Daytona Beach, FL $7,000 5.510% 12/01/27 Cooper's Hawk Jacksonville, FL -(7) -(7) Hunter's Ridge at Deerwood Jacksonville, FL -(2) -(2) Lakeside Jacksonville, FL -(9) -(9) Paddock Club-Jacksonville I Jacksonville, FL -(10) -(10) Paddock Club-Jacksonville II Jacksonville, FL -(10) -(10) Paddock Club-JacksonvilleIII Jacksonville, FL -(10) -(10) St. Augustine Jacksonville, FL -(7) -(7) Woodbridge at the Lake Jacksonville, FL $3,672 -(1) -(1) Woodhollow Jacksonville, FL $10,149 7.500% 09/01/02 Paddock Club-Lakeland I Lakeland, FL -(10) -(10) Paddock Club-Lakeland II Lakeland, FL -(10) -(10) Savannahs at James Landing Melbourne, FL -(7) -(7) Paddock Park-Ocala I Ocala, FL $6,805 6.500% 10/01/08 Paddock Park-Ocala II Ocala, FL -(2) -(2) Paddock Club-Tallahassee I Tallahassee, FL -(2) -(2) Paddock Club-Tallahassee II Tallahassee, FL $4,727 8.500% 04/01/36 Belmere Tampa, FL -(9) -(9) Sailwinds at Lake Magdalene Tampa, FL $15,950 8.915% 12/01/99 $48,303 Hidden Oaks I Albany, GA - - - Hidden Oaks II Albany, GA $2,470 8.000% 02/01/21 Regency Club Albany, GA - - - High Ridge Athens, GA -(9) -(9) Shenandoah Ridge Augusta, GA -(9) -(9) Sterling Ridge Augusta, GA $4,805 8.750% 04/01/17 Westbury Creek Augusta, GA $3,207 7.594% 11/01/24 Fountain Lake Brunswick, GA $3,005 7.750% 04/01/24 Park Walk College Park, GA $3,438 6.370% 11/01/25 2000 Wynnton Columbus, GA - - - Riverwind Columbus, GA - - - Whisperwood Columbus, GA -(2) -(2) Whisperwood Spa & Club Columbus, GA -(2) -(2) Willow Creek Columbus, GA -(9) -(9) Hollybrook Dalton, GA $2,520 8.915% 12/01/99 Whispering Pines I LaGrange, GA $2,770 7.750% 01/01/23 Whispering Pines II LaGrange, GA $2,561 6.150% 12/01/24 Westbury Springs Lilburn, GA $4,307 7.500% 07/01/23 Austin Chase Macon, GA $10,182 7.300% 05/01/98 The Vistas Macon, GA $4,130 6.230% 03/01/28 Wildwood I Thomasville, GA $2,112 7.500% 12/01/20 Wildwood II Thomasville, GA $2,046 6.573% 07/01/24 Hidden Lake I Union City, GA $4,583 6.340% 12/01/26 Hidden Lake II Union City, GA -(9) -(9) Three Oaks I Valdosta, GA $2,894 7.500% 02/01/22 Three Oaks II Valdosta, GA $2,978 6.259% 07/01/24 Southland Station I Warner Robins, GA -(9) -(9) Southland Station II Warner Robins, GA - - - Terraces at Towne Lake Woodstock, GA $15,246 8.200% 01/01/37 $73,254 Fairways at Hartland Bowling Green, KY $4,697 8.875% 05/01/00 Paddock Club Florence Florence, KY $9,723 7.250% 02/01/36 Lakepointe Lexington, KY -(9) -(9) Mansion, The Lexington, KY $4,140 8.915% 12/01/99 Village, The Lexington, KY -(9) -(9) Stonemill Village Louisville, KY -(6) -(6) $18,560 Canyon Creek St. Louis, MO -(6) -(6) Riverhills Grenada, MS $851 7.000% 05/01/13 Advantages, The Jackson, MS -(6) -(6) Crosswinds Jackson, MS -(9) -(9) Lakeshore Landing Jackson, MS -(6) -(6) Pear Orchard Jackson, MS -(9) -(9) Pine Trails Jackson, MS $1,357 7.000% 04/01/15 Reflection Pointe Jackson, MS $5,882 5.500% 12/01/27 Somerset Place Jackson, MS -(9) -(9) Woodridge Jackson, MS $4,789 6.500% 10/01/27 $12,879 Hermitage at Beechtree Cary, NC -(9) -(9) Woodstream Greensboro, NC $5,491 9.250% 12/01/98 Corners, The Winston-Salem, NC $4,306 7.850% 06/15/03 $9,797 Fairways at Royal Oak Cincinnati, OH -(9) -(9) Colony at Southpark Aiken, SC - - - Woodwinds Aiken, SC $3,532 8.840% 06/01/05 Tanglewood Anderson, SC $2,576 7.600% 11/15/02 The Fairways Columbia, SC $7,641 8.500% 03/01/33 Paddock Club-Columbia I Columbia, SC -(2) -(2) Paddock Club-Columbia II Columbia, SC -(2) -(2) Highland Ridge Greenville, SC -(3) -(3) Howell Commons Greenville, SC -(9) -(9) Paddock Club - Greenville Greenville, SC -(2) -(2) Park Haywood Greenville, SC -(9) -(9) Spring Creek Greenville, SC -(3) -(3) Runaway Bay Mt. Pleasant, SC -(3) -(3) Park Place Spartanburg, SC -(9) -(9) $13,749 Hamilton Pointe Chattanooga, TN -(6) -(6) Hidden Creek Chattanooga, TN -(6) -(6) Steeplechase Chattanooga, TN -(9) -(9) Windridge Chattanooga, TN $5,558 6.314% 12/01/24 Oaks, The Jackson, TN -(6) -(6) Post House Jackson Jackson, TN $5,140 8.170% 10/01/27 Post House North Jackson, TN $3,680 5.750% 09/01/25 Williamsburg Village Jackson, TN -(9) -(9) Woods at Post House Jackson, TN $5,313 7.250% 09/01/35 Cedar Mill Memphis, TN $2,487 -(4) -(4) & (6) Clearbrook Village Memphis, TN $1,162 9.000% 05/01/08 Crossings Memphis, TN -(6) -(6) EastView Memphis, TN $3,286 8.630% 12/01/99 Glen Eagles Memphis, TN -(6) -(6) Greenbrook Memphis, TN $15,477 -(5) -(5) Hickory Farm Memphis, TN -(6) -(6) Kirby Station Memphis, TN -(9) -(9) Lincoln on the Green Memphis, TN -(10) -(10) Lincoln on the Green II Memphis, TN - - - McKellar Woods Memphis, TN $8,357 -(5) -(5) Park Estate Memphis, TN $1,471 -(5) -(5) River Trace I Memphis, TN $5,832 7.500% 02/01/22 River Trace II Memphis, TN $5,739 6.380% 02/01/26 Savannah Creek Memphis, TN (8) -(9) -(9) Sutton Place Memphis, TN (8) -(9) -(9) Winchester Square Memphis, TN -(6) -(6) Brentwood Downs Nashville, TN $6,678 8.915% 12/01/99 Park at Hermitage Nashville, TN $8,190 5.790% 02/01/19 $78,370 Balcones Woods Austin, TX $8,986 7.630% 11/01/03 Stassney Woods Austin, TX $4,825 6.600% 04/01/19 Travis Station Austin, TX $4,265 6.600% 04/01/19 Woods Austin, TX -(2) -(2) Redford Park Conroe, TX $3,000 9.006% 12/01/04 Celery Stalk Dallas, TX $8,460 9.006% 12/01/04 Lodge at Timberglen Dallas, TX $4,740 9.006% 12/01/04 MacArthur Ridge Irving, TX $7,524 7.400% 08/15/98 Westborough Katy, TX $3,958 9.006% 12/01/04 Lane at Towne Crossing Mesquite, TX $5,696 8.750% 01/01/98 Cypresswood Court Spring, TX $3,330 9.006% 12/01/04 Green Tree Place Woodlands, TX $3,180 9.006% 12/01/04 $57,964 Township Hampton, VA -(2) -(2) Total $326,444
[FN] (1) Encumbered by two mortgages with interest rates of 7.75% and maturities of September 7, 1999 and January 1, 2004. (2) Encumbered by the Credit Line, with an outstanding balance of $45.2 million at December 31, 1997. The line had a variable interest rate at December 31, 1997 of 7.07%. (3) These three properties are encumbered by a $10.3 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.09%. (4) Cedar Mill is encumbered by two mortgages with interest rates of 7.8% and 8.35%, with maturities of February 4, 2004 and July 1, 2001 and Mendenhall Townhomes with a 8.65% loan maturing July 1, 2001. (5) Encumbered by three mortgages with interest rates of 7.8%, 7.55% and 8.35% and maturities of February 4, 2004, July 1, 2001 and July 1, 2001, respectively. (6) These twelve properties are encumbered by a $43.4 million mortgage with a maturity of July 1, 2001 and an average interest rate of 8.65%. (7) These three properties are encumbered by a $16.5 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.75%. (8) These properties are located in Desoto County, MS, a suburb of Memphis, TN. The Company considers the properties part of the Memphis, TN market. (9) These 26 properties are encumbered by a $140 million loan with a maturity of March 3, 2003 and an average interest rate of 6.62%. (10) These six properties are encumbered by a $47.5 million mortgage. ITEM 3. LEGAL PROCEEDINGS Neither the Company nor the Communities is presently subject to any material litigation nor, to the Company's knowledge, is any material litigation threatened against the Company or the Communities properties, other than routine litigation arising in the ordinary course of business, some of which is expected to be covered by liability insurance and none of which is expected to have a material adverse effect on the business, financial condition, liquidity or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held a Special Meeting of shareholders in November 1997 for the following purposes: Proposal 1: To approve an amendment to the Company's Charter to increase the number of authorized shares of Common Stock from 20 million shares to 50 million shares. Proposal 2: To approve an amendment to the Company's Charter to increase the number of authorized shares of Preferred Stock from 5 million shares to 20 million shares. Votes Cast Votes Cast Votes Cast Against or Abstentions/ In Favor Withheld Non Votes ---------- ---------- ------------ Votes cast by holders of Common Stock: - -------------------------------------- Proposal 1 12,648,206 2,231,956 99,670 Proposal 2 8,736,016 2,610,523 131,468 Votes cast by holders of 9.5% Series A Cumulative Preferred Stock: - ------------------------------------ Proposal 2 1,060,289 71,026 24,025 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock has been listed and traded on the NYSE under the symbol "MAA" since the Initial Offering in February 1994. On March 13, 1998, the reported last sale price of the Company's common stock on the NYSE was $28.13 per share and there were approximately 1,640 holders of record of the Common Stock. The Company estimates there are approximately 16,000 beneficial owners of the Common Stock. The following table sets forth the quarterly high and low sales prices of the Common Stock as reported on the NYSE and the distributions declared by the Company with respect to the periods indicated. Sales Prices ---------------- Dividends High Low Declared --------- --------- --------- 1996: ----- First Quarter $ 26.875 $ 24.00 $ .51 Second Quarter 26.625 25.00 .51 Third Quarter 25.875 23.75 .51 Fourth Quarter 28.875 24.625 .535 1997: ----- First Quarter $ 29.750 $ 27.625 .535 Second Quarter 28.875 25.00 .535 Third Quarter 30.500 26.625 .535 Fourth Quarter 30.063 26.625 .55 The Company's current annual distribution rate with respect to the Common Stock is $2.20 per share. The actual distributions made by the Company will be affected by a number of factors, including the gross revenues received from the Communities, the operating expenses of the Company, the interest expense incurred on borrowings and unanticipated capital expenditures. The Company pays a preferential regular monthly distribution on the Series A Preferred Stock issued in October 1996 and the Series B Preferred Stock issued in November 1997 at an annual rate of $2.375 per share and $2.21875 per share, respectively. No distribution may be made on the Common Stock unless all accrued distributions have been made with respect to the Series A and Series B Preferred Stock. No assurance can be given that the Company will be able to maintain its distribution rate on its Common Stock or make required distributions with respect to the Series A or Series B Preferred Stock. In 1997, the Company implemented the DRSPP under which holders of Common Stock (and Series A and Series B Preferred Stock) may elect automatically to reinvest their distributions in additional shares of Common Stock and/or to make optional purchases of Common Stock free of brokerage commissions and charges. Shares purchased directly from the Company will be purchased at up to a 3% discount from their fair market value at the Company's discretion. To fulfill its obligations under the DRSPP, the Company may either issue additional shares of Common Stock or repurchase Common Stock in the open market. Future distributions by the Company will be at the discretion of the Board of Directors and will depend on the actual funds available for distribution of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data on an historical basis for the Company and its predecessor. This data should be read in conjunction with the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K. In the opinion of management, the data for the periods presented include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. Mid - America Apartment Communities, Inc. Selected Financial Data (Dollars in thousands except per share and property data)
Year Ended December 31, ---------------------------------------------------- Historical ---------------------------------------------------- (Predecessor) 1997 1996 1995 1994 (1) 1993 --------- --------- --------- --------- -------- Operating Data: - -------------- Total revenues $139,116 $111,882 $94,963 $51,207 $26,295 Expenses: Property expenses (2) 52,404 42,570 37,954 19,484 11,316 General and administrative 6,602 6,154 4,851 3,613 1,402 Interest 28,943 25,766 22,684 10,233 7,448 Depreciation and amortization 27,737 21,443 16,574 8,803 3,521 Amortization of deferred financing costs 888 661 593 296 199 Gain on disposition of properties - 2,185 - - - Income before minority interest in operating partnership income and extraordinary item 22,542 17,473 12,307 8,778 2,409 Extraordinary item (8,622) - - 485 - Net income 11,227 14,260 9,810 6,944 2,542 Deferred dividends 5,252 990 - - N/A Net income available for common shareholders $5,975 $13,270 $9,810 $6,944 N/A Per Share Data: - -------------- Basic and diluted: Before extraordinary item $1.05 $1.21 $1.00 $0.94 N/A Extraordinary item ($0.62) $0.00 $0.00 $0.07 N/A --------------------------------------------------- Net income available per common share $0.43 $1.21 $1.00 $1.01 N/A =================================================== Dividends declared $2.16 $2.07 $2.01 $1.71 N/A Balance Sheet Data: - ------------------ Real estate owned, at cost $1,211,693 $641,893 $578,788 $434,460 $125,269 Real estate owned, net $1,134,704 $592,335 $549,284 $421,074 $98,029 Total assets $1,194,070 $611,199 $565,267 $439,233 $104,439 Total debt $632,213 $315,239 $307,939 $232,766 $105,594 Minority interest $62,865 $39,238 $41,049 $43,709 N/A Shareholders' equity (owners' deficit) $461,500 $241,384 $202,278 $152,385 ($4,684) Weighted average common shares (000's) $13,897 $10,938 $9,772 $6,484 N/A Other Data (at end of period): - ----------------------------- Market capitalization (shares and units) $710,175 $436,739 $331,238 $295,300 N/A Ratio of total debt to total capitalization(3) 47.1% 41.9% 48.2% 44.1% N/A Number of Properties 116 73 70 54 22 Number of apartment units 30,579 19,280 18,219 14,333 5,580
[FN] (1) Operating data for 1994 includes 34 days of predecessor financial information and per share data for 1994 is for the period February 4, 1994 through December 31, 1994. (2) See discussion of the change in accounting policy during 1996 in Note 1 to the Consolidated Financial Statements. (3) Total capitalizati on is total debt and market capitalization of preferred shares, common shares and partnership units. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following is a discussion of the consolidated financial condition and results of operations of the Company for the years ended December 31, 1997, 1996, and 1995. This discussion should be read in conjunction with all of the financial statements included in this Annual Report on Form 10-K. These financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. FUNDS FROM OPERATIONS Funds from operations ("FFO") represents net income (computed in accordance with GAAP) excluding extraordinary items, minority interest in Operating Partnership income, gain or loss on disposition of real estate assets, and certain non-cash items, primarily depreciation and amortization, less preferred stock dividends. The Company computes FFO in accordance with NAREIT's current definition, which eliminates amortization of deferred financing costs and depreciation of non-real estate assets as items added back to net income when computing FFO. The Company adopted this method of calculating FFO effective as of the NAREIT-suggested adoption date of January 1, 1996. FFO should not be considered as an alternative to net income or any other GAAP measurement of performance, as an indicator of operating performance or as an alternative to cash flows from operating, investing, and financing activities as a measure of liquidity. The Company believes that FFO is helpful in understanding the Company's results of operations in that such calculation reflects cash flow from operating activities and the Company's ability to support interest payments and general operating expenses before the impact of certain activities such as changes in other assets and accounts payable. The Company's calculation of FFO may differ from the methodology for calculating FFO utilized by other REITs and, accordingly, may not be comparable to such other REITs. For the year ended December 31, 1997, FFO increased by approximately $8,102,000 or 22%, when compared to the year ended December 31, 1996. The increase was primarily attributable to an approximate $27,233,000 increase in revenues, which was partially offset by increases in expenses mainly associated with the increase in the number of apartment units owned by the Company. On a per share basis, FFO increased approximately 3% from $2.66 per share for the year ended December 31, 1996 to $2.73 per share for the same period in 1997. For the year ended December 31, 1996, FFO increased by approximately $6,809,000 or 23.7%, when compared to the year earlier (adjusted only for the new NAREIT definition of FFO). The increase was primarily attributable to an approximate $16,919,000 increase in revenues, which was partially offset by increases in expenses mainly associated with the increase in the number of apartment units owned by the Company. On a per share basis, FFO increased 8.6% from $2.44 per share (restated for the effect of adoption of the current NAREIT FFO definition and the change in accounting policy) for the year ended December 31, 1995 to $2.65 per share for the same period in 1996. RESULTS OF OPERATIONS COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996 During the 1997 period, the Company acquired 12 communities containing 3,314 apartment units. In addition, through the November 25, 1997 merger with Flournoy Development Company ("FDC"), the Company acquired 32 communities containing 8,641 apartment units including 950 apartment units under development. The total number of apartment units owned at December 31, 1997 was 30,468 in 115 apartment communities, compared to 19,280 in 73 communities at December 31, 1996. Average monthly rental per apartment unit increased to $549 at December 31, 1997 from $529 at December 31, 1996 for the Company's properties owned prior to the merger. For the communities owned prior to the merger, average occupancy for the years ended December 31, 1997 and 1996 was 94.5% and 95.4%, respectively. For the properties acquired through the FDC Merger, average monthly rental per apartment unit was $613 and average occupancy was 92.2% at December 31, 1997. Total revenues for 1997 increased by approximately $27,234,000, due primarily to (i) approximately $12,743,000 from the 12 Communities acquired in 1997, (ii) approximately $5,342,000 from the 30 completed Communities acquired through the FDC Merger, (iii) approximately $6,759,000 from a full years operation of the six Communities acquired in 1996, (iii) approximately $2,113,000 from the Communities owned throughout both periods, and (iv) approximately $277,000 from The Woods at Post House in Jackson, Tennessee which completed development in the Fall of 1995 and Lincoln on the Green phase II in Memphis, Tennessee which completed development early 1998. Property operating expenses for 1997 increased by approximately $9,834,000, due primarily to (i) approximately $4,929,000 from the 12 Communities acquired in 1997, (ii) approximately $1,938,000 from the 30 completed Communities acquired through the FDC Merger, (iii) approximately $2,298,000 from a full years operation of the six Communities acquired in 1996, (iii) approximately $583,000 from the Communities owned throughout both periods, and (iv) approximately $86,000 from The Woods at Post House which completed development in the Fall of 1995 and Lincoln on the Green phase II. Utility costs decreased from 5.5% of revenue to 4.6% of revenue for the year ended December 31, 1997 compared to the same period a year earlier, due primarily to over 13,000 units now submetered for water usage and continued benefits from the 1996 completion of the individual apartment unit electricity metering at Sailwinds at Lake Magdalene. General and administrative expense increased $448,000 for the year ended December 31, 1997 compared to December 31, 1996 and decreased from 5.5% of revenue to 4.8% of revenue for the year ended December 31, 1997 compared to the same period a year earlier. The reductions result from $122,000 transfer of landscape overhead to property costs, $156,000 reduced state and local taxes and increased operating efficiencies of a larger operation. Depreciation and amortization expense increased primarily due to (i) approximately $2,503,000 from the 12 Communities acquired in 1997, (ii) approximately $1,247,000 from the 30 completed Communities acquired through the FDC Merger, (iii) approximately $1,493,000 from a full years operation of the six Communities acquired in 1996, (iii) approximately $1,224,000 from additional capital expenditures on Communities owned throughout both periods, and (iv) approximately $54,000 from The Woods at Post House and Lincoln on the Green phase II. Amortization of deferred financing costs and unamortized costs in excess of fair value of net assets acquired for 1997 were approximately $888,000 and approximately $309,000, respectively. Interest expense increased approximately $3,177,000 during 1997 due primarily to apartment acquisitions. The Company reduced its average borrowing cost to 7.41% at December 31, 1997 as compared to 7.92% on December 31, 1996. The average maturity on the Company's debt was 10.2 and 9.9 years at December 31, 1997 and 1996, respectively. In 1997, the Company recorded an approximate $8,622,000 loss on early extinguishment of debt, net of minority interest, primarily from the repayment of certain debt in connection with the FDC Merger. Income before minority interest for the year ended December 31, 1997 increased approximately $5,069,000 over the same period a year earlier. COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995 During the 1996 period, the Company acquired six apartment communities and sold three apartment communities. The total number of apartment units owned at December 31, 1996 was 19,280 in 73 apartment communities, compared to 18,219 in 70 communities at December 31, 1995. Average monthly rental per apartment unit increased to $529 at December 31, 1996 from $508 at December 30, 1995. Average occupancy for the years ended December 31, 1996 and 1995 was 95.4% and 95.2%, respectively. Total revenues for 1996 increased by approximately $16,919,000, due primarily to (i) approximately $4,833,000 from the six Communities acquired in 1996, (ii) approximately $7,156,000 from a full years operation of the 15 Communities acquired in 1995, including the Communities acquired in the AFR Merger, (iii) approximately $4,363,000 from the Communities owned throughout both periods, and (iv) approximately $567,000 from The Woods at Post House in Jackson, Tennessee which completed development in the Fall of 1995. Property operating expenses for 1996 increased by approximately $4,616,000, due primarily to (i) approximately $1,686,000 from the six Communities acquired in 1996, (ii) approximately $2,746,000 from a full year's operations of the 15 Communities acquired in 1995, including the Communities acquired in the AFR Merger, and (iii) approximately $234,000 from The Woods at Post House. These increases were offset by a decrease of approximately $51,000 from the Communities owned throughout both periods. Repair and maintenance expense decreased primarily due to the Company's change in the capitalization policy to conform with policies currently used by the majority of the largest apartment REITs. Utility costs decreased from 6.1% of revenue to 5.5% of revenue for the year ended December 31, 1996 compared to the same period a year earlier, due primarily to the installation of 6,400 individual apartment unit water meters and the completion of the individual apartment unit electricity metering at Sailwinds at Lake Magdalene. General and administrative expense increased in 1996 approximately $1,303,000 primarily due to the opening of the new training center and other expenses due to the continued growth of the company. Depreciation and amortization expense increased primarily due to (i) approximately $893,000 from the six apartment communities acquired in 1996, (ii) approximately $1,346,000 from the 15 apartment communities acquired in 1995, including the Communities acquired in the AFR Merger, (iii) approximately $2,187,000 from additional capital expenditures on Communities owned throughout both periods, and (iv) approximately $443,000 from The Woods at Post House in Jackson, Tennessee which completed development in the Fall of 1995. Amortization of deferred financing costs and unamortized costs in excess of fair value of net assets acquired for 1996 were approximately $661,000 and approximately $192,000, respectively. Interest expense increased approximately $3,082,000 during 1996 due primarily to apartment acquisitions. The Company reduced the average borrowing cost to 7.92% at December 31, 1996 as compared to 8.15% on December 31, 1995. The average maturity on the Company's debt was 9.9 years at both December 31, 1996 and 1995. In 1996, the Company recorded an approximate $2,185,000 gain for the disposition of three apartment communities. The dispositions were structured as tax-deferred exchanges for federal tax purposes. As a result of the foregoing, income before minority interest for the year ended December 31, 1996 increased approximately $5,166,000 over the same period a year earlier. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities increased from approximately $38,018,000 for the year ended December 31, 1996 to approximately $44,797,000 for the year ended December 31, 1997. The increase in net cash flow was primarily due to an increase in depreciation and amortization less an extraordinary loss recorded due to the early extinguishment of certain debt. Net cash used in investing activities increased from approximately $70,436,000 for the year ended December 31, 1996 to approximately $138,263,000 for the year ended December 31, 1997. The increase was primarily due to the acquisition of 3,314 apartment units in 1997 for approximately $76,287,000 as compared to the acquisition of 1,760 apartment units in 1996 for approximately $66,258,000. This increase in net cash flow used in investing activities was partially offset by the sale of three apartment communities in 1996 for approximately $17,096,000. Capital improvements to existing properties totaled approximately $20,205,000 for the year ended December 31, 1997, compared to approximately $18,437,000 for the same period in 1996. Of the $20,205,000 capital improvements approximately $7,743,000 was for recurring capital expenditures, including carpet and appliances, approximately $6,112,000 was for revenue enhancing projects, approximately $5,557,000 was for acquisition capital with the remaining balance for other miscellaneous expenditures, including corporate. Recurring capital expenditures averaged $0.47 per share in 1997. Construction in progress for new apartment units increased from approximately $2,837,000 for the year ended December 31, 1996 to approximately $16,093,000 for the comparable period in 1997, due primarily to the completion of the 234-unit development at Lincoln on the Green in Memphis, Tennessee which began leasing during 1997 and other developments including $1,685,000 for the 254-unit Reserve at Dexter Lake, $1,273,000 for the 288-unit Mandarin, $879,000 for the 154- unit phase II addition for Whisperwood Spa and $789,000 for the 316- unit Terraces at Fieldstone. Net cash provided by financing activities increased from approximately $33,425,000 during the year ended December 31, 1996 to approximately $104,218,000 for the year ended December 31, 1997. During 1997, approximately $202,320,000 was provided by borrowings under the Credit Line and notes payable and approximately $46,635,000 was provided from the issuance of preferred shares. The principal uses of the cash included approximately $30,021,000 for the repayment of notes payable and approximately $39,771,000 for dividends and distributions. At December 31, 1997, the Company had approximately $45,225,000 outstanding on the Credit Line. At December 31, 1997, the Company had approximately $63,200,000 (including the Credit Line) of floating rate debt at an average interest rate of 6.5%; all other debt was fixed rate term debt at an average interest rate of 7.8%. The weighted average interest rate and weighted average maturity at December 31, 1997 for the approximately $632,213,000 of notes payable were 7.4% and 10.2 years, respectively. The Company used the approximately $46,635,000 of net proceeds from the Preferred Stock Offering, which closed in November, for the acquisitions of the 192- unit Sterling Ridge apartment community in Augusta, Georgia and the 184-unit Colony at South Park apartment community in Aiken, South Carolina and used the balance to reduce the amount outstanding on the Credit Line. In November 1997, the Company increased its credit limit under the Credit Line from $90,000,000 to $110,000,000 and in March 1998 increased the credit limit to $200,000,000. The Company expects to use the Credit Line for future acquisitions, development, and to provide letters of credit as credit enhancements for tax- exempt bonds. In March 1997 the Company issued 2,300,000 shares of Common Stock in an underwritten public offering. The net proceeds from such offering were approximately $62.5 million, all of which were contributed to the Operating Partnership and utilized to repay outstanding borrowings under the Credit Line. The Credit Line is secured and is subject to borrowing base calculations that effectively reduce the maximum amount that may be borrowed under the Credit Line to approximately $44,300,000 as of the date of this Annual Report on Form 10-K. The Company believes that cash provided by operations is adequate and anticipates that it will continue to be adequate in both the short and long-term to meet operating requirements (including recurring capital expenditures at the Communities) and payment of distributions by the Company in accordance with REIT requirements under the Code. During 1997, capital expenditures were approximately $20,205,000 for property improvements and $16,093,000 for the development of new units. For 1998, the Company plans approximately $27,000,000 for property improvements and $120,000,000 for development of new units. The Company expects to meet its long term liquidity requirements, such as scheduled mortgage debt maturities, property acquisitions, expansions and non- recurring capital expenditures, through long and medium-term collateralized and uncollateralized fixed rate borrowings, issuance of debt or additional equity securities in the Company and the Credit Line. INSURANCE In the opinion of management, property and casualty insurance is in place which provides adequate coverage to provide financial protection against normal insurable risks such that it believes that any loss experienced would not have a significant impact on the Company's liquidity, financial position, or results of operations. INFLATION Substantially all of the resident leases at the Communities allow, at the time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Company to seek rent increases. The substantial majority of these leases are for one year or less. The short-term nature of these leases generally serves to reduce the risk to the Company of the adverse effects of inflation. YEAR 2000 The Company is aware of the issues associated with the programming code in existing computer systems as the millennium (Year 2000) approaches. The "Year 2000" issue is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two digit year value to 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company is utilizing both internal and external resources to identify, correct or reprogram, and test the systems for the Year 2000 compliance. During 1997, the Company developed a plan to deal with the Year 2000 issue. Management has conducted a comprehensive review of the Company's computer systems to identify the systems that could be affected by the Year 2000 issue and has developed an implementation plan to resolve potential issues. The Company has reviewed our core mainframe systems and application subsystems and have obtained the Year 2000 compliant releases and are developing the installation and testing plan for each of these applications. The Company has corresponded with our third party service providers and other providers of software and hardware for certification of their compliance with Year 2000 issues. It is anticipated that all reprogramming efforts will be completed by December 31, 1998, allowing adequate time for testing. Management has assessed the Year 2000 compliance expense and believe that the related potential effect on the Company's business, financial condition and results of operations should be immaterial. The Company is expensing all costs associated with the Year 2000 as the costs are incurred. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS The Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These statements include the plans and objectives of management for future operations, including plans and objectives relating to capital expenditures and rehabilitation costs on the apartment communities. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Annual Report on Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report, Consolidated Financial Statements and Selected Quarterly Financial Information are set forth on pages F-1 to F-21 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's independent accountants and auditors on any matter of accounting principles or practices or financial statement disclosure. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On July 23, 1997, the Company acquired its corporate headquarters for $2,912,000. In connection with the acquisition, the Company formed a special committee of its external directors to negotiate the transaction on its behalf because certain executive officers of the Company were also partners in the partnership which owned the building. The consideration consisted of approximately $862,000 cash, 22,246 Operating Partnership Units valued at $634,000 ($28.50 per unit) and the assumption of an existing loan. Certain executive officers of the Company were partners in the partnership who owned the building and received 5,831 units of common shares connected with the exchange. All transactions involving related parties must be approved by a majority of the disinterested members of the Company's Board of Directors. The Company has, and expects to have, transactions in the ordinary course of its business with directors and officers of the Company and their affiliates, including members of their families or corporations, partnerships or other organizations in which such officers or directors have a controlling interest, on substantially the same terms (including price, or interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated parties. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Independent Auditors' Report F - 1 Consolidated Balance Sheets as of December 31, F - 2 1997 and 1996 Consolidated Statements of Operations for the years ended F - 3 December 31, 1997, 1996 and 1995 Consolidated Statements of Shareholders' Equity for the years ended F - 4 December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended F - 5 December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements for F - 6 the years ended December 31, 1997, 1996 and 1995 2. Financial Statement Schedule required to be filed by item 8 and Paragraph (d) of this item 14: Independent Auditors' Report F - 17 Schedule III - Real Estate Investments and Accumulated Depreciation as of F - 18 December 31, 1997 3. The exhibits required by Item 601 of Regulation S-K, except as otherwise noted, have been filed with previous reports by the registrant and are herein incorporated by reference. Item 16. Exhibits. Exhibit Numbers Exhibit Description - ------- ------------------- 2.1* Agreement and Plan of Reorganization made as of September 15, 1997 by and among Mid-America Apartments, L.P., Mid-America Apartment Communities, Inc. and Flournoy Development Company 3.1 Amended and Restated Charter of Mid-America Apartment Communities, Inc. dated as of January 10, 1994, as filed with the Tennessee Secretary of State on January 25, 1994 3.2****** Articles of Amendment to the Charter of Mid-America Apartment Communities, Inc. dated as of January 28, 1994, as filed with the Tennessee Secretary of State on January 28, 1994 3.3 Articles of Merger of The Cates Company with and into Mid- America Apartment Communities, Inc. dated February 2, 1994, as filed with the Tennessee Secretary of State on February 3, 1994 3.4****** Articles of Merger of America First REIT Advisory Company, a Nebraska corporation, with and into Mid-America Apartment Communities, Inc., a Tennessee corporation, dated June 29, 1995, as filed with the Tennessee Secretary of State on June 29, 1995 3.5** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating and Fixing the Rights and Preferences of A Series of Preferred Stock dated as of October 9, 1996, as filed with the Tennessee Secretary of State on October 10, 1996 3.6 Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated November 17, 1997, as filed with the Tennessee Secretary of State on November 18, 1997 3.7*** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating and Fixing the Rights and Preferences of A Series of Preferred Stock dated as of November 17, 1997, as filed with the Tennessee Secretary of State on November 18, 1997 3.8 Articles of Merger of Flournoy Development Company (a Georgia corporation) with and into Mid-America Apartment Communities, Inc. (a Tennessee corporation) dated November 21, 1997, as filed with the Tennessee Secretary of State on November 25, 1997 3.9 Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter dated December 15, 1997, as filed with the Tennessee Secretary of State on December 31, 1997 3.10 Bylaws of Mid-America Apartment Communities, Inc. 4.1 Form of Common Share Certificate 4.2**** Form of 9.5% Series A Cumulative Preferred Stock Certificate 4.3***** Form of 8 7/8% Series B Cumulative Preferred Stock Certificate 4.4** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating and Fixing the Rights and Preferences of A Series of Preferred Stock dated as of October 9, 1996, as filed with the Tennessee Secretary of State on October 10, 1996 4.5*** Mid-America Apartment Communities, Inc. Articles of Amendment to the Amended and Restated Charter Designating and Fixing the Rights and Preferences of A Series of Preferred Stock dated as of November 17, 1997, as filed with the Tennessee Secretary of State on November 18, 1997 10.1 Second Amended and Restated Agreement of Limited Partnership of Mid-America Apartments, L.P., a Tennessee limited partnership 10.2 Employment Agreement between Mid-America Apartment Communities, Inc. and George E. Cates 10.3 1994 Restricted Stock and Stock Option Plan 10.4******* Promissory Note of the Operating Partnership in favor of Leader Federal Bank for Savings (McKellar) 10.5******* Promissory Note of the Operating Partnership in favor of Leader Federal Bank for Savings (Park Estate) 10.6******* Promissory Note of the Operating Partnership in favor of Leader Federal Bank for Savings (Greenbrook) 10.7******* Promissory Note of the Operating Partnership in favor of Leader Federal Bank for Savings (Cedar Mill) 10.8******* Assignment of Rents and Leases by the Operating Partnership in favor of Leader Federal Bank for Savings (McKellar, Park Estate, Greenbrook, Cedar Mill) 10.9 Revolving Credit Agreement between the Registrant and AmSouth Bank of Alabama 10.10 Note Purchase Agreement of the Operating Partnership and the Registrant and Prudential Insurance Company of America 11.1 Statement re: computation of per share earnings (included within the Form 10-K) 12.1 Statement re: computation of ratios (definition of ratios used are disclosed as footnotes on the related table(s) within the Form 10-K 21.1 List of Subsidiaries 23.1 Consent of KPMG Peat Marwick LLP 23.2 Opinion of KPMG Peat Marwick LLP on Schedule III (included in F pages of this Form 10-K) 27.1 Financial Data Schedule _____________________ * Filed as Exhibit 10.20 to the Registrant's Current Report on Form 8-K, filed with the Commission on September 19, 1997 (Commission File No. 1-12762) ** Filed as Exhibit 1 to the Registrant's Registration Statement on Form 8-A filed with the Commission on October 11, 1996 *** Filed as Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A filed with the Commission on November 19, 1997 **** Filed as Exhibit 3 to the Registrant's Registration Statement on Form 8-A filed with the Commission on October 11, 1996 ***** Filed as Exhibit 4.3 to the Registrant's Registration Statement on Form 8-A filed with the Commission on November 19, 1997 ****** Filed as an exhibit to the 1996 Annual Report of the Registrant on Form 10-K as of March 31, 1997 ******* Filed as an exhibit to the Registration Statement on Form S-11 (SEC File No. 33-81970), as amended, of the Registrant and incorporated herein by reference. (b) Reports on Form 8-K The following report was filed on Form 8-K by the registrant during the fourth quarter of 1996: Date of Form Events Reported Report ------ -------------------------------- ------- 8-K Announcement of two apartment 10/07/97 acquisitions and the sale of Common Stock 8-K/A Combined Financial Statements for 11/06/97 Flournoy Properties Group for the years ended December 31, 1996, 1995, and 1994 (Audited) and six months ended June 30, 1997 and 1996 (Unaudited). Pro Forma Condensed Combined Financial Statements for the Registrant and Subsidiaries for the year ended December 31, 1996 and six months ended June 30, 1997 (Unaudited). 8-K/A Combined Financial Statements for 11/14/97 Flournoy Properties Group for the years ended December 31, 1996, 1995, and 1994 (Audited) and six months ended September 30, 1997 and 1996 (Unaudited). Pro Forma Condensed Combined Financial Statements for the Registrant and Subsidiaries for the year ended December 31, 1996 and six months ended September 30, 1997 (Unaudited). 8-K/A Audited historical summary of gross 11/20/97 income and operating expenses for two apartment acquisitions. 8-K Announcement of an apartment community 11/20/97 acquisition and the related audited historical summary of gross income and operating expenses. 8-K Announcement of an apartment acquisition, 11/21/97 the sale of preferred stock and the related underwriting agreement. (c) Exhibits: See Item 14(a)(3) above. (d) Financial Statement Schedules: See Item 14(a)(2) above. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MID-AMERICA APARTMENT COMMUNITIES, INC. Date: March 30, 1998______ /s/ George E. Cates___________ George E. Cates Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Date: March 30, 1998 /s/ George E. Cates__________ George E. Cates Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: March 30, 1998 /s/ Simon R.C. Wadsworth______ Simon R.C. Wadsworth Executive Vice President (Principal Financial and Accounting Officer) Date: March 30, 1998 /s/ H. Eric Bolton H. Eric Bolton President and Chief Operating Officer Date: March 25, 1998 /s/ John F. Flournoy John F. Flournoy Vice-Chairman of the Board and Chief Executive Officer, Flournoy Development Company Date: March 24, 1998 /s/ John J. Byrne,III John J. Byrne, III Director Date: March 30, 1998 /s/ Robert F. Fogelman Robert F. Fogelman Director Date: March 24, 1998 /s/ John S. Grinalds John S. Grinalds Director Date: March 23, 1998 /s/ O. Mason Hawkins O. Mason Hawkins Director Independent Auditors' Report The Board of Directors and Shareholders Mid-America Apartment Communities, Inc. We have audited the accompanying consolidated balance sheets of Mid- America Apartment Communities, Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1996 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financials statements referred to above present fairly, in all material respects the financial position of the Company at December 31, 1997 and 1996, and the results of the Company's operations and cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, the Company changed its accounting method to capitalize replacement purchases for major appliances and carpet in 1996. /s/ KPMG Peat Marwick LLP Memphis, Tennessee March 27, 1998 Mid-America Apartment Communities, Inc. Consolidated Balance Sheets December 31, 1997 and 1996 (Dollars in thousands)
1997 1996 ---------- ---------- Assets: - ------ Real estate assets (note 3): Land $109,800 $61,150 Buildings and improvements 1,027,853 563,584 Furniture, fixtures and equipment 21,886 12,511 ---------- ----------- 1,159,539 637,245 Less accumulated depreciation (76,129) (49,558) ---------- ----------- Apartment properties, net 1,083,410 587,687 Construction in progress 33,717 4,648 Land held for future development 8,849 0 Commercial properties, net 8,728 0 ---------- ---------- Real estate assets, net 1,134,704 592,335 Cash and cash equivalents 14,805 4,053 Restricted cash 13,397 5,538 Deferred financing costs, net 5,700 2,984 Other assets 25,464 6,289 ---------- ---------- Total assets $1,194,070 $611,199 ========== ========== Liabilities and Shareholders' equity: - ------------------------------------ Liabilities: Notes payable (note 3) $632,213 $315,239 Accounts payable 10,098 744 Accrued expenses and other liabilities 22,885 12,182 Security deposits 4,509 2,412 ---------- ---------- Total liabilities 669,705 330,577 Minority interest 62,865 39,238 Commitments and Contingencies (note 5) - - Shareholders' equity: Preferred stock, $.01 par value, $25 per share liquidation preference, 20,000,000 shares authorized 2,000,000 shares at 9.5% Series A Cumulative 20 20 1,938,830 shares at 8.875% Series B Cumulative 19 0 Common stock, $.01 par value (authorized 50,000,000 shares); issued and outstanding 18,479,046 and 10,949,216 shares at December 31, 1997 and 1996, respect 185 109 Additional paid-in capital 500,492 256,689 Other (845) (260) Accumulated deficit (38,371) (15,174) ---------- ---------- Total shareholders' equity 461,500 241,384 ---------- ---------- Total liabilities and shareholders' equity $1,194,070 $611,199 ========== ==========
See accompanying notes to consolidated financial statements. Mid-America Apartment Communities, Inc. Consolidated Statements of Operations Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands except per share data)
1997 1996 1995 -------- -------- -------- Revenues: Rental $135,673 $110,090 $93,509 Other 3,279 1,792 1,454 Management and development income, net 164 0 0 -------- -------- -------- Total revenues 139,116 111,882 94,963 -------- -------- -------- Expenses: Personnel 14,623 11,702 9,798 Building repairs and maintenance 6,811 5,305 5,791 Real estate taxes and insurance 14,465 11,642 10,198 Utilities 6,341 6,148 5,753 Landscaping 3,684 2,910 2,361 Other operating 6,480 4,863 4,053 Depreciation and amortization 27,737 21,443 16,574 General and administrative 6,602 6,154 4,851 Interest 28,943 25,766 22,684 Amortization of deferred financing costs 888 661 593 -------- -------- -------- Total expenses 116,574 96,594 82,656 -------- -------- -------- Income before gain on disposition of properties, minority interest in operating partnership income and extraordinary item 22,542 15,288 12,307 Gain on disposition of properties - 2,185 - -------- -------- -------- Income before minority interest in operating partnership income and extraordinary item 22,542 17,473 12,307 -------- -------- -------- Minority interest in operating partnership income 2,693 3,213 2,497 -------- -------- -------- Net income before extraordinary item 19,849 14,260 9,810 -------- -------- -------- Extraordinary item: loss on early extinguishment of debt (note 3) (8,622) - - -------- -------- -------- Net Income 11,227 14,260 9,810 Dividends on preferred shares 5,252 990 - -------- -------- -------- Net income available for common shareholders $5,975 $13,270 $9,810 ======== ======== ======== Net income available per common share (note 7) Basic: Before extraordinary item $ 1.05 $ 1.21 $ 1.00 Extraordinary item (0.62) - - Net income available per comm $ 0.43 $ 1.21 $ 1.00 Diluted: Before extraordinary item $ 1.05 $ 1.21 $ 1.00 Extraordinary item (0.62) - - Net income available per comm $ 0.43 $ 1.21 $ 1.00
See accompanying notes to consolidated financial statements. Mid-America Apartment Communities, Inc. Consolidated Statements of Shareholders' Equity Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
Series A Series B Common Preferred Preferred Stock Stock Stock Amount --------- --------- --------- SHAREHOLDERS' EQUITY DECEMBER 31, 1994 $ - $ - $ 86 Issuance of common shares - - - Exercise of stock options - - - Shares issued in exchange for units - - - Shares issued in AFR Merger - - 23 Amortization of unearned compensation - - - Dividends on common stock ($2.00 per share) - - - Net income - - - --------- --------- --------- SHAREHOLDERS' EQUITY DECEMBER 31, 1995 $ - $ - $ 109 Issuance of common shares - - - Issuance of preferred shares 20 - - Exercise of stock options - - - Shares issued in exchange for units - - - Amortization of unearned compensation - - - Dividends on common stock ($2.04 per share) - - - Dividends on preferred stock - - - Net income - - - --------- --------- --------- SHAREHOLDERS' EQUITY DECEMBER 31, 1996 $ 20 $ 0 $ 109 Issuance of common shares - - 59 Issuance of Series B preferred shares - 19 - Exercise of stock options - - - Notes receivable issued for shares and units (Note - - - Shares issued in exchange for units - - 1 Shares issued in FDC Merger - - 16 Adjustment for minority interest of Unitholders resulting from: Common Stock Offerings - - - FDC Merger - - - Other - - - Amortization of unearned compensation - - - Dividends on common stock ($2.14 per share) - - - Dividends on preferred stock - - - Net income - - - --------- --------- --------- SHAREHOLDERS' EQUITY DECEMBER 31, 1997 $20 $19 $185 ========= ========= ========= See accompanying notes to consolidated financial statements. Additional Accumulated Paid-In Earnings Capital Other (Deficit) Total --------- --------- ---------- --------- SHAREHOLDERS' EQUITY DECEMBER 31, 1994 $150,435 ($542) $2,406 $152,385 Issuance of common shares 106 37 - 143 Exercise of stock options 203 - - 203 Shares issued in exchange for units 200 - - 200 Shares issued in AFR Merger 57,726 - - 57,749 Amortization of unearned compensation - 124 - 124 Dividends on common stock ($2.00 per share) - - (18,336) (18,336) Net income - - 9,810 9,810 --------- --------- ---------- --------- SHAREHOLDERS' EQUITY DECEMBER 31, 1995 $208,670 ($381) ($6,120) $202,278 Issuance of common shares 277 - - 277 Issuance of preferred shares 47,748 - - 47,768 Exercise of stock options (2) - - (2) Shares issued in exchange for units (4) - - (4) Amortization of unearned compensation - 121 - 121 Dividends on common stock ($2.04 per share) - - (22,324) (22,324) Dividends on preferred stock - - (990) (990) Net income - - 14,260 14,260 --------- --------- ---------- --------- SHAREHOLDERS' EQUITY DECEMBER 31, 1996 $256,689 ($260) ($15,174) $241,384 Issuance of common shares 163,514 - - 163,573 Issuance of Series B preferred shares 46,633 - - 46,652 Exercise of stock options (31) - - (31) Notes receivable issued for shares and units (Note - (706) - (706) Shares issued in exchange for units 973 - - 974 Shares issued in FDC Merger 44,374 - - 44,390 Adjustment for minority interest of Unitholders resulting from: Common Stock Offerings (10,008) - - (10,008) FDC Merger (834) - - (834) Other (818) - - (818) Amortization of unearned compensation - 121 - 121 Dividends on common stock ($2.14 per share) - - (29,172) (29,172) Dividends on preferred stock - - (5,252) (5,252) Net income - - 11,227 11,227 --------- --------- ---------- --------- SHAREHOLDERS' EQUITY DECEMBER 31, 1997 $500,492 ($845) ($38,371) $461,500 ========= ========= ========== =========
Mid-America Apartment Communities, Inc. Consolidated Statements of Cash Flow Years ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
1997 1996 1995 ------- ------- ------- Cash flows from operating activities: - ------------------------------------ Net income $11,227 $14,260 $9,810 Adjustments to reconcile net income to net cash provided by operating activity: Depreciation and amortization 28,746 22,243 17,291 Minority interest in operating partnership income 2,693 3,213 2,497 Extraordinary item 8,622 - - Gain on disposition of properties - (2,185) - - Changes in assets and liabilities, net of effect from business combination: Restricted cash (1,214) (1,420) 6,333 Other assets (1,341) (95) (1,154) Accounts payable 140 6 (77) Accrued expenses and other liabilities (4,550) 2,036 (358) Security deposits 474 (40) (53) ------ ------ ------ Net cash provided by operating activities 44,797 38,018 34,289 Cash flows from investing activities: - ------------------------------------ Purchases of real estate assets (76,287) (66,258) (15,561) Proceeds from dispositions of real estate assets - 17,096 - Improvements to properties (20,205) (18,437) (19,233) Construction of units in progress and future development (16,093) (2,837) (5,692) Net cash (paid in) acquired from business combination (25,678) - 1,319 -------- ------- ------- Net cash used in investing activities (138,263) (70,436) (39,167) Cash flows from financing activities: - ------------------------------------ Proceeds from notes payable 187,500 17,049 19,256 Net increase in credit line 14,820 12,358 18,047 Principal payments on notes payable (267,003) (14,427) (10,928) Deferred financing costs (3,813) (1,256) (484) Proceeds from issuances of common shares and units 165,858 271 346 Proceeds from issuances of preferred shares 46,635 47,768 - Redemption of unitholder interests (8) (36) (43) Distributions to unitholders (5,347) (4,988) (4,914) Dividends paid on common shares (29,172) (22,324) (18,336) Dividends paid on preferred shares (5,252) (990) - ------- ------- ------- Net cash provided by financing activities 104,218 33,425 2,944 ------- ------- ------- Net increase(decrease)in cash and cash equivalents 10,752 55,282 1,007 (1,934) ------- ------- ------- Cash and cash equivalents, beginning of period 4,053 3,046 4,980 ------- ------- ------- Cash and cash equivalents, end of period $14,805 $4,053 $3,046 ======= ======= ======= Supplemental disclosure of cash flow information: - ------------------------------------------------ Interest paid $27,468 $25,262 $22,362 ------- ------- ------- Supplemental disclosure of noncash investing activities: - ------------------------------------------------ Increase in basis of properties acquired in connection with the business combination $ 58,359 $ - $ - Assumption (transfer) of debt related to property acquisitions (dispositions) $ 63,690 $(7,680) $ - Issuance of units related to property acquisitions $ 880 $ - $ - Conversion of units for common shares $ 973 $ - $ 200 Issuance of note receivable in exchange for common shares and units $ 706 $ - $ -
See Accompanying Notes to consolidated financial statements. Mid-America Apartment Communities, Inc. Notes to Consolidated Financial Statements Years ended December 31, 1997, 1996 and 1995 1. Organization and Summary of Significant Accounting Policies Organization and Formation of the Company Mid-America Apartment Communities, Inc. (the "Company") is a self- administrated and self-managed real estate investment trust which owns, develops, acquires and operates multifamily apartment communities in the southeastern United States and Texas. The Company owns and operates 115 apartment communities principally through its majority owned subsidiary, Mid-America Apartments, L.P. (the "Operating Partnership") and its subsidiary, Mid-America Capital Partners, L.P. ("MACP"). MACP is a recently formed special purpose entity established to issue first mortgage bonds. In addition to owning and operating apartment communities, the Company conducts third party property management and construction and development activities through its service corporation, Flournoy Development Corporation. Basis of Presentation The accompanying financial statements include the accounts of the Company, the Operating Partnership, and other subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Minority Interest Minority interest in the accompanying consolidated financial statements relates to the ownership interest in the Operating Partnership by the holders of Class A Common Units of the Operating Partnership. The Company is the sole general partner of the Operating Partnership. Net income is allocated to the Minority Interests based on their respective ownership percentage of the Operating Partnership as described below. Issuance of additional Common Shares or Operating Partnership Units changes the ownership of both the Minority Interests and the Company. Such transactions and the proceeds therefrom are treated as capital transactions and result in an allocation between shareholders' equity and Minority Interests to account for the change in the respective percentage ownership of the underlying equity of the Operating Partnership. The Company's Board established economic rights in respect of each unit of limited partnership interest in the Operating Partnership that were equivalent to the economic rights in respect of each share of common stock. Each unit is redeemable at the option of the holder thereof in exchange for one share of common stock. The Operating Partnership has followed the policy of paying the same per unit distribution in respect of the units as the per share distribution in respect of the common stock. Prior to 1997, the Operating Partnership agreement provided for the allocation of additional net income to the holders of Class A units that would otherwise be the net income of the Company or another entity. Effective January 1, 1997 the Operating Partnership agreement was amended to eliminate the additional allocation of income to the unitholders. Operating Partnership net income for 1997 was allocated approximately 17.9% to holders of Class A Common Units and 82.1% to the Company. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Revenue Recognition The Company leases residential apartments under operating leases with terms of one year or less. Rental and other revenues are recorded when earned. In addition to leasing the owned Communities, the Company provides property management services for affiliated Section 42 Housing Tax Credit multifamily properties ("Section 42") and conventional properties. Property management revenue is recorded on the accrual method of accounting as earned. The Company receives development and construction fees related to the development of the affiliated Section 42 properties. Development and construction income is recognized as earned as the property is developed and certain operating and financing performance conditions are met. Development income is not recognized to the extent that requirements exist to invest a portion of such development fees in the partnership entities from which the fees are earned. Construction contract revenues, which are presented net of construction contract costs in the accompanying statements of operations, are recognized using the percentage-of-completion method. Under this method, the percentage of contract revenue to be recognized currently is computed based upon that percentage of estimated total revenue that incurred costs to date bear to total estimated costs, after giving effect to the most recent estimates of costs to complete. Revisions in cost and revenue estimates are reflected in the period in which the facts, which require the revision, become known. When revised cost estimates indicate a loss on an individual contract, the total estimated loss is provided for currently in its entirety without regard to the percentage of completion. Cash and Cash Equivalents The Company considers cash, investments in money market accounts and certificates of deposit with original maturities of three months or less to be cash equivalents. Restricted Cash Restricted cash consists of escrow deposits held by lenders for property taxes, insurance, debt service and replacement reserves. Real Estate Assets and Depreciation Real estate assets are carried at the lower of depreciated cost or net realizable value. Interest, property taxes, and other development costs incurred during construction is capitalized until completion. Interest of $388,000 and $91,000 was capitalized in 1997 and 1996, respectively. Repairs and maintenance costs are expensed as incurred while significant improvements, renovations, and replacements are capitalized. The cost of interior painting, vinyl flooring, and blinds are expensed as incurred. In conjunction with acquisitions of properties, the Company's policy is to provide in its acquisition budgets adequate funds to complete any deferred maintenance items to bring the properties to the required standard, including the cost of replacement appliances, carpet, interior painting, vinyl flooring, and blinds. These costs are capitalized. Following a review of its capital expenditure and depreciation policy, effective January 1, 1996, the Company implemented a new policy of which the primary changes were (i) to increase minimum dollar amounts to capitalize from $500 to $1,000; (ii) for stabilized properties (generally, properties owned and operated by the Company for at least one year), to capitalize replacement purchases for major appliances and carpeting of an entire apartment unit which was previously expensed; and (iii) to reduce the depreciation life of certain assets from 20 years to 10 to 15 years. The Company believes that the newly adopted accounting policy is preferable because it is consistent with policies currently being used by the majority of the largest apartment REITs and provides a better matching of expenses with the estimated benefit period. The Company's 1995 financial statements were not restated for the effect of the change in accounting policy. The policy has been implemented prospectively effective January 1, 1996. The effect of the change in depreciable lives was not material to consolidated net income of the Company. Depreciation is computed on a straight line basis over the estimated useful lives of the related assets which range from 8 to 40 years for land improvements and buildings and 5 years for furniture, fixtures and equipment. Depreciation expense includes $195,000, $155,000 and $104,000 in 1997, 1996 and 1995 which relates to computer software, office furniture and fixtures and other assets found in other industries and which is required to be recognized, for purposes of funds from operations computations, as expenses in the calculation of net income. The Company periodically evaluates its real estate assets for impairment based upon undiscounted cash flows and measures impairment based on fair value. This determination is dependent primarily on the Company's estimates on occupancy, rent and expense increases, which involves numerous assumptions and judgments as to future events over a period of many years. At December 31, 1997 the Company does not hold any assets which meet the impairment criteria. Real Estate Held for Development or Sale Real estate held for development or sale, which consists primarily of sites intended for future multifamily developments, is stated at the lower of aggregate cost or fair value. The cost includes the purchase price of the land, construction, and development costs and fees, as well as capitalized interest and loan fees. Deferred Costs and Intangibles Organization costs are amortized using the straight line method over 60 months. Deferred financing costs are amortized over the terms of the related debt using a method which approximates the interest method. Unamortized cost in excess of fair value of net assets acquired is amortized using the straight line method over a range of 8 to 30 years. Recent Accounting Pronouncements In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued, effective for years beginning after December 15, 1997. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. This new accounting statement is not expected to have a material impact on the Company's consolidated financial statements. The Company will adopt this accounting standard in 1998. Also in June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," was issued, effective for years beginning after December 15, 1997. This statement requires companies to identify segments consistent with the manner in which management makes decisions about allocating resources to segments and measuring their performance. Disclosures for the newly identified segments are similar to those required under current standards, with the addition of certain quarterly disclosure requirements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company will adopt this accounting standard in 1998. Reclassification Certain prior year amounts have been reclassified to conform with 1997 presentation. The reclassifications had no effect on shareholders' equity or net income available for common shareholders. 2. Business Combinations On November 25, 1997, the Company completed the merger with Flournoy Development Company and related entities ("FDC") (the "FDC Merger") accounted for using the purchase method of accounting. Total consideration consisted of $88,271,000, including 1,550,311 shares of common stock and 412,110 Operating Partnership units in Mid-America Apartments, L.P., valued at $56,213,000 ($28.6875 per share and unit), $29,608,000 cash and transaction costs of approximately $2,450,000. The Company may also issue additional shares of Common Stock (the "Contingent Value Shares") having a value of up to $7,500,000 if certain agreed upon conditions are satisfied during calendar years 1998, 1999 and 2000. When and if issued, the Contingent Value Shares will be recorded as additional purchase consideration based upon the fair value of the Common Stock at the date of issuance. The operating results of FDC are included in the accompanying statement of operations commencing November 25, 1997. The assets acquired and liabilities assumed in connection with the merger were recorded at their respective fair values as follows: Fair value of assets acquired, primarily real estate assets $ 411,397,000 Liabilities assumed 335,326,000 --------------- Net assets acquired $ 76,071,000 =============== The following unaudited summarized pro forma consolidated financial information has been prepared as if the FDC Merger, various other insignificant acquisitions ( 13 in 1997 and 6 in 1996) and dispositions (3 in 1996) of properties during the periods presented and various financing transaction entered into in connection with the acquisitions had occurred as of the beginning of the periods presented. In management's opinion, the summarized pro forma consolidated financial information does not purport to present what actual results would have been had the above transactions occurred on January 1, 1996, or to project results for any future period. The amounts presented for the years ended December 31, 1997 and 1996 are in thousands except for share amounts (unaudited): 1997 1996 --------- --------- Total Revenues $ 195,748 $ 188,290 Net income before extraordinary item $ 22,104 $ 23,160 Extraordinary item, net of minority interest (7,866) - Dividends on preferred shares (9,052) (9,052) --------- --------- Net income available for common shareholders $ 5,186 $ 14,108 ========= ========= Per common share amounts: - ------------------------- Basic net income before extraordinary item $ 0.71 $ 0.76 per common share Basic net income available per common share $ 0.28 $ 0.76 On June 29, 1995, the Company completed the acquisition of America First REIT, Inc. and America First REIT Advisory Company ("AFR") accounted for using the purchase method of accounting. The Company exchanged 2,331,000 shares of its common stock, valued at $57,749,000, for all of the capital stock of AFR. The operating results of AFR are included in the accompanying statement of operations commencing July 1, 1995. The fair value of assets acquired and liabilities assumed were as follows: Fair value of assets acquired, primarily real estate assets $ 109,999,000 Liabilities assumed 52,250,000 ------------- Net assets acquired $ 57,749,000 ============= 3. Borrowings During 1997, the Company entered into a new $110 million line of credit agreement (the "Credit Line") which expires in November 1999. The Credit Line is secured by certain of the properties, bears interest at LIBOR plus 1.25% (7.07% at December 31, 1997), and has various restrictive financial covenants. At December 31, 1997, $45.2 million was outstanding under the Credit Line. At December 31, 1996, $30.4 million was outstanding under a $90 million line of credit, which was replaced by the Credit Line. At December 31, 1997 MACP had indebtedness of $140 million to Morgan Stanley Mortgage Capital Inc. pursuant to a short-term promissory note (the MSMC Loan). The 26 Communities, with a net book value of $213.6 million at December 31, 1997, owned by MACP are pledged to secure the MSMC Loan. The MSMC Loan has a variable interest rate of LIBOR plus 1.00% (6.72% at December 31, 1997). The MSMC Loan was repaid subsequent to December 31, 1997. See note 11. The Company has approximately $447.0 million and $284.8 million at December 31, 1997 and 1996 under various mortgage notes payable. These notes are secured by real estate assets and certain restricted cash accounts. As of December 31, 1997, the Company estimated that the weighted average interest rate on the Company's debt was 7.41% with an average maturity of 10.2 years. These estimates consider the effect of the MSMC Loan repayment discussed in note 11. During 1997, the Company extinguished a bond note, resulting in an extraordinary loss of $771,000. At consummation of the merger with FDC, the Company repaid certain debt primarily attributable to FDC, resulting in an extraordinary loss of $7,851,000, net of minority interest. The following tables summarize the Company's indebtedness at December 31, 1997. The tables are prepared as if the issuance of the commercial mortgage pass-through certificates and repayment of the MSMC Loan which occurred in 1998 (see note 11) had occurred at December 31, 1997:
At December 31, 1997 ----------------------------------- Actual Average Interest Interest Rates Rate Maturity 1997 1996 (dollars in millions) Fixed Rate: Taxable 6.50 - 10.625% 8.06% 1998 - 2037 $ 479.0 $ 212.7 Tax-exempt 5.75 - 8.75% 6.36% 2008 - 2028 90.0 55.3 - ---------------------------------------------------------------------- $ 569.0 $ 268.0 Variable Rate: Taxable 7.07 - 7.22% 6.88% 1998 - 2009 $ 46.6 $ 30.4 Tax-exempt 5.50 - 5.75% 5.56% 2025 - 2027 16.6 16.8 - ---------------------------------------------------------------------- $ 63.2 $ 47.2 - ---------------------------------------------------------------------- $ 632.2 $ 315.2 ======================================================================
Year Amortization Balloon Payments Total - --------- ------------ ---------------- ----- (dollars in thousands) 1998 $ 4,146 $ 18,564 $ 22,710 1999 4,299 90,339 94,638 2000 4,088 4,525 8,613 2001 4,191 54,256 58,447 2002 4,373 11,233 15,606 Thereafter 178,147 154,052 332,199 - ------------------------------------------------------------------- $ 199,244 $ 432,969 $ 632,213 - ------------------------------------------------------------------- The Company's indebtedness includes various restrictive financial covenants. The Company believes that it was in compliance with these covenants as of December 31, 1997. 4. Fair Value Disclosure of Financial Instruments Cash and cash equivalents, rental receivable, accounts payable and accrued expenses and other liabilities and security deposits are carried at amounts which reasonably approximate their fair value. Fixed rate notes payable at December 31, 1997 and 1996 total $569.0 million and $268.0 million, respectively, and reasonably approximates the estimated fair value (excluding prepayment penalties) based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of December 31, 1997 and 1996. These notes were subject to prepayment penalties, in the event of repayment prior to maturity. The carrying value of variable rate notes payable at December 31, 1997 and 1996 total $63.2 million and $47.2 million, respectively, and reasonably approximates their fair value. Included in these variable rate notes are certain Multifamily Housing Renewal bonds with rates which are less than the prime lending rates at December 31, 1997 and 1996. Approximately $16.6 million in 1997 and $16.8 million in 1996 of these mortgages are non-taxable and have lower rates than would be expected for taxable notes with similar terms. The fair value estimates presented herein are based on information available to management as of December 31, 1997 and 1996. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. 5. Commitments and Contingencies The Company is not presently subject to any material litigation nor, to the Company's knowledge, is any material litigation threatened against the Company, other than routine litigation arising in the ordinary course of business, some of which is expected to be covered by liability insurance and none of which is expected to have a material adverse effect on the consolidated financial statements of the Company. The Company incurred lease expense relating to a five year aircraft lease agreement for the years ended December 31, 1997, 1996, and 1995 of $187,000, $185,400, and $185,400, respectively. 6. Income Taxes No provision for federal income taxes has been made in the accompanying consolidated financial statements. The Company has made an election to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Code. As a REIT, the Company generally is not subject to Federal income tax to the extent it distributes 95% of its REIT taxable income to its shareholders and meets certain other tests relating to the number of shareholders, types of assets and allocable income. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to the Federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Even though the Company qualifies for taxation as a REIT, the Company may be subject to certain Federal, state and local taxes on its income and property and to Federal income and excise tax on its undistributed income. Earnings and profits, which determine the taxability of dividends to shareholders, differ from net income reported for financial reporting purposes primarily because of differences in depreciable lives, bases of certain assets and liabilities and in the timing of recognition of earnings upon disposition of properties. For federal income tax purposes, the following summarizes the taxability of cash distributions paid on the common shares in 1996 and 1995 and the estimated taxability for 1997: 1997 1996 1995 ------ ------ ------ Per common share Ordinary income $ 1.16 $ 1.50 $ 1.45 Capital gains - .02 - Return of capital 0.98 .52 .55 ---------------------------- Total $ 2.14 $ 2.04 $ 2.00 ============================ 7. Shareholders' Equity Series A Preferred Stock Series A Cumulative Preferred Stock ("Series A Preferred Stock") has a $25.00 per share liquidation preference and a preferential cummulative annual distribution of $2.375 per share, payable monthly. The Company issued 2,000,000 Series A Preferred share in October 1996 and received net proceeds of $47.8 million. Series B Preferred Stock Series B Cumulative Preferred Stock ("Series B Preferred Stock") has a $25.00 per share liquidation preference and a preferential cummulative annual distribution of $2.21875 per share, payable monthly. In November 1997 the Company issued 1,938,830 Series B shares and received net proceeds of $46.7 million. Common Stock Offerings In March 1997 the Company issued 2,300,000 shares of Common Stock and received net proceeds of $62.5 million. In October 1997 the Company issued 3,499,000 shares of Common Stock and received net proceeds of $98.2 million. The Company contributed the net proceeds of the offerings to the Operating Partnership in exchange for additional Common Units in the Operating Partnership. Dividend Reinvestment and Stock Purchase Plan In January 1997, the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the "DRSPP") pursuant to which the Company's shareholders will be permitted to acquire shares of Common Stock through the reinvestment of distributions on Common Stock, Series A Preferred Stock, Series B Preferred Stock and through optional cash payments from shareholders. The Company has registered with the Securities and Exchange Commission the offer and sale of up to 750,000 shares of Common Stock pursuant to the DRSPP. During 1997, 24,785 shares of Common Stock were acquired by shareholders pursuant to the DRSPP. Earnings Per Share and Dividend Data The Company adopted SFAS No. 128, "Earnings per Share", effective for financial statements for periods ending after December 15, 1997. All prior period EPS data has been restated to conform with the provisions of this statement. The computation of basic earnings per share is based on the weighted average number of common shares outstanding. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding plus the shares resulting from the assumed exercise of all outstanding options using the treasury stock method. The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 1997, 1996 and 1995.
1997 1996 1995 ---- ---- ---- Basic: - ------ Net income before preferred dividends and extraordinary item $ 19,849 $ 14,260 $ 9,810 Dividends on preferred shares (5,252) (990) - ---------------------------- Net income available for common shareholders before extraordinary item $ 14,597 $ 13,270 $ 9,810 Extraordinary item (8,622) - - ---------------------------- Net income available for common shareholders $ 5,975 $ 13,720 $ 9,810 ============================ Average common shares outstanding 13,892 10,938 9,772 Basic earnings per share: - ------------------------- Net income available per common share before extraordinary item $ 1.05 $ 1.21 $ 1.00 Extraordinary item (0.62) - - ---------------------------- Net income available per common share $ 0.43 $ 1.21 $ 1.00 ============================ Diluted: - -------- Net income before preferred dividends and extraordinary item $ 19,849 $ 14,260 $ 9,810 Dividends on preferred shares (5,252) (990) - ---------------------------- Net income available for common shareholders before extraordinary item $ 14,597 $ 13,270 $ 9,810 Extraordinary item (8,622) - - ---------------------------- Net income available for common shareholders $ 5,975 $ 13,270 $ 9,810 ============================ Average common shares outstanding 13,892 10,938 9,772 Effect of dilutive stock options 63 45 42 ---------------------------- Average dilutive common shares outstanding 13,955 10,983 9,814 ============================ Diluted earnings per share: - --------------------------- Net income available per common share before extraordinary item $ 1.05 $ 1.21 $ 1.00 Extraordinary item (0.62) - - ---------------------------- Net income available per common share $ 0.43 $ 1.21 $ 1.00 ============================
[FN] The computation of earnings per share does not include the Contingent Value Shares which may be issued in 1998, 1999, and 2000 due to the conditions for issuance of the shares have not been satisfied. 8. Employee Benefit Plans 401 (k) Savings Plan The Mid-America Apartment Communities, Inc. 401(k) Savings Plan is a defined contribution plan that satisfies the requirements of Section 401(a) and 401(k) of the Code. The Company may, but is not obligated to, make a matching contribution of $.50 for each $1.00 contributed, up to 6% of the participant's compensation. The Company's contribution to this plan was $154,300, $118,700 and $81,600 in 1997, 1996 and 1995, respectively. Non-qualified Deferred Compensation Plan The Company has adopted a non-qualified deferred compensation plan for key employees who are not qualified for participation in the Company's 401 (k) Savings Plan. Under the terms of the plan, employees may elect to defer a percentage of their compensation and the Company matches a portion of their salary deferral. The plan is designed so that the employees' investment earnings under the non-qualified plan should be the same as the earning assets in the Company's 401 (k) Savings Plan. The Company's match to this plan in 1997, 1996 and 1995 was $18,600, $23,600 and $8,600, respectively. Employee Stock Purchase Plan The Mid-America Apartment Communities, Inc. Employee Stock Purchase Plan (the "ESPP") provides a means for employees to purchase common stock of the Company. The board has authorized the issuance of 150,000 shares for the plan. The ESPP is administered by the Compensation Committee who may annually grant options to employees to purchase annually up to an aggregate of 15,000 shares of common stock at a price equal to 85% of the market price of the common stock. During 1997, 1996 and 1995, the ESPP purchased 2,758, 3,176 and 2,710 shares, respectively. Employee Stock Ownership Plan The Mid-America Apartment Communities, Inc. Employee Stock Ownership Plan (the "ESOP") which is a non-contributory stock bonus plan that satisfies the requirements of Section 401 (a) of the Internal Revenue Code. Each employee of the Company is eligible to participate in the ESOP after attaining the age of 21 years and completing one year of service with the Company. Participants' ESOP accounts will be 100% vested after five years of continuous service, with no vesting prior to that time. The Company contributed 22,500 shares of Common Stock to the ESOP upon conclusion of the IPO. During 1997, 1996 and 1995, the Company contributed $344,000, $276,000 and $186,000, respectively, to the ESOP which purchased an additional 11,921, 8,208 and 5,148 shares, respectively. Stock Option Plan The Company has adopted the 1994 Restricted Stock and Stock Option Plan (the "Plan") to provide incentives to attract and retain independent directors, executive officers and key employees. The Plan provides for the grant of options to purchase a specified number of shares of common stock ("Options") or grants of restricted shares of common stock ("Restricted Stock"). The Plan also allows the Company to grant options to purchase Operating Partnership units at the price of the Common Stock on the New York Stock Exchange on the day prior to issuance of the units (the "LESOP Provision"). The Plan authorizes Options to buy a total of 500,000 shares of common stock. The Compensation Committee of the Board of Directors is responsible for granting Options and shares of Restricted Stock and for establishing the exercise price of Options and terms and conditions of Restricted Stock. During the first quarter of 1997, the Company amended the Plan to increase the shares authorized an increase from 500,000 to 1,000,000 and to remove the restriction on the number of options that may be issued, subject to overall plan limits. In 1997 the Company granted options to certain executives and other officers to purchase 96,000 shares of Common Stock and 110,000 Operating Partnership units pursuant to the LESOP Provision. In 1997 options to purchase 75,000 shares of common stock and 110,000 Operating Partnership units were exercised and the Company advanced a portion of the purchase price of these shares and units. The employee advances mature five years from date of issuance and accrue interest, payable in arrears, at a rate of 7.0% per annum. At December 31, 1997, the outstanding principal balance on the employee advances was approximately $700,000 and is recorded in the Company's statement of shareholders' equity. The Company entered into supplemental bonus agreements with the employees which are intended to fund the payment of the advances over a five year period. Under the terms of the supplemental bonus agreements, the Company will pay cash bonuses to these employees equal to 20% of the original note balance on each anniversary date of the notes. The bonuses are limited to 15% of the aggregate purchase price of the common shares and units. A summary of changes in Options to acquire shares of Common Stock and Operating Partnership Units for the three years ended December 31, 1997 follows: Weighted Average Options Exercise Price ------- ---------------- Outstanding at December 31, 1994 235,000 20.40 Granted 33,000 25.07 Exercised (12,150) 19.75 Forfeited (8,300) 22.02 -------- Outstanding at December 31, 1995 247,550 21.00 Granted 99,000 26.50 Exercised (1,900) 19.75 Forfeited (6,000) 25.81 -------- Outstanding at December 31, 1996 338,650 22.53 Granted 416,500 29.46 Exercised (218,625) 28.17 Forfeited (13,025) 27.91 -------- Outstanding at December 31, 1997 523,500 25.40 ======== Options exercisable: December 31, 1995 34,850 $ 20.63 December 31, 1996 84,050 20.82 December 31, 1997 140,500 21.71 Exercise prices for options outstanding as of December 31, 1997 ranged from $19.75 to $29.50. The weighted average remaining contractual life of those options is 8 years. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which requires either the (i) fair value of employee stock-based compensation plans be recorded as a component of compensation expense in the statement of operations as of the date of grant of awards related to such plans, or (ii) impact of such fair value on net income and earnings per share be disclosed on a pro forma basis in a footnote to financial statements for awards granted after December 15, 1994, if the accounting for such awards continues to be in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25"). The Company will continue such accounting under the provisions of APB 25. The pro forma effects in 1997 and 1996 to net income per common share were not considered material. 9. Financial Instruments with Off-Balance Sheet Risk The Partnership has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Partnership occasionally utilizes derivative financial instruments as hedges in anticipation of future debt transactions to manage well-defined interest rate risk. In anticipation of the March 6, 1998 financing transaction discussed in Note 11 "Subsequent Events (Unaudited)", the Partnership entered into four separate interest rate contracts in 1997 with notional amounts aggregating $140 million. As of December 31, 1997 the fair value of these interest rate contracts, based on broker estimates, was an unrealized loss of approximately $1.1 million ($1.4 million realized loss as of March 6, 1998). Unrealized changes in the market value of interest rate contracts are deferred until the hedged transaction is consumated and realized gains and losses resulting from changes in the market value of these contacts are deferred and amortized into interest expense over the life of the related debt issuance. 10. Related Party Transaction During 1997 the Company acquired its corporate headquarters building for $2,912,000 from a partnership whose partners included certain executive officers of the Company. The consideration paid consisted of $862,000 cash, 22,246 Operating Partnership Units valued at $634,000 ($28.50 per unit) and the assumption of an existing loan. Prior to acquisition the Company leased the building from the partnership. 11. Subsequent Events (Unaudited) Declaration of Dividend The Company declared a fourth quarter common stock dividend of $.55 per share to be paid January 30, 1998 to holders of record on January 23, 1998. Completed Acquisitions Since December 31, 1997, the Company has acquired the following apartment communities (the "Completed Acquisitions") containing an aggregate of 392 apartment units (dollars in millions): NUMBER OF ACQUISITION CONTRACT PROPERTY MARKET UNITS DATE PRICE -------- ------ -------- ----------- -------- Walden Run McDonough, GA 240 2/5/98 $ 13.4 Van Mark Huntsville, AL 152 2/26/98 5.1 -------- -------- Total 392 $ 18.5 ======== ======== The financial statements of the completed acquisitions are not included in the audited consolidated financial statements included herein. Financing Transactions On March 6, 1998, MACP completed the sale of $142,000,000 of first mortgage bonds (the "MACP Bonds") secured by liens on 26 properties owned by MACP. The MACP Bonds were issued to Mid-America Finance, Inc., a wholly owned qualified REIT subsidiary of the Company, which deposited MACP Bonds into a grantor trust (the "Trust"). The Trust issued commercial mortgage pass-through certificates representing beneficial ownership of the MACP Bonds. The five year fixed rate non-amortizing certificates bear interest at 6.376%. The net proceeds to the Company were approximately $139.2 million after payment of initial discount, underwriters' fees, costs of rate lock and other expenses. The Company used the net proceeds of the MACP Bonds to repay the MSMC Loan. On March 13, 1998, the Company issued mortgages of $36.2 million, refinancing $29.04 million of existing loans. These new mortgages are fixed at 7.00% and will amortize over 25 years and will balloon in 2005. On March 16, 1998, the Company increased its line of credit from $110 million to $200 million with terms substantially the same as before. 11. Selected Quarterly Financial Information (Unaudited) Mid-America Apartment Communities, Inc. Quarterly Financial Data (Unaudited) (Dollars in thousands except per share data)
Year Ended December 31, 1997 ---------------------------- First(2) Second(2) Third(2) Fourth -------- -------- -------- -------- Total revenues $29,839 $32,720 $34,395 $42,162 Income before minority interest in operating partnership income and extraordinary item $4,704 $5,461 $5,085 $7,292 Minority interest in operating partnership income $527 $651 $620 $895 Extraordinary item, net of minority interest - - - ($8,622) Net income (loss) available for common shareholders $2,990 $3,622 $3,278 ($3,915) Per share: Basic and diluted per share (1): Net income available per common shares Before extraordinary item $0.26 $0.27 $0.24 $0.27 Extraordinary item $0.00 $0.00 $0.00 ($0.50) --------------------------------------------- Net income available per common share $0.26 $0.27 $0.24 ($0.23) ============================================= Dividend declared $0.535 $0.535 $0.535 $0.550 Year Ended December 31, 1996 ---------------------------- First Second Third Fourth --------- ------- ------- ------- Total revenues $27,151 $27,361 $28,362 $29,008 Income before minority interest in operating partnership income and extraordinary item $3,638 $5,595 $3,492 $4,748 Minority interest in operating partnership income $670 $1,027 $644 $872 Net income available for common shareholders $2,968 $4,568 $2,848 $2,886 Per share: Basic and diluted per share (1): Net income available per common shares Before extraordinary item $0.27 $0.42 $0.26 $0.26 Extraordinary item $0.00 $0.00 $0.00 $0.00 ---------------------------------------------- Net income available per common share $0.27 $0.42 $0.26 $0.26 ============================================== Dividend declared $0.510 $0.510 $0.510 $0.535
[FN] (1) Earnings per share have been restated for the effect of implementing, in the quarter ended December 31, 1997 SFAS No. 128, "Earnings per Share". (2) During the quarter ended December 31, 1997, the Operating Partnership Agreement was amended to eliminate, effective January 1, 1997, the additional allocation of income to the Class A Common unitholders. The amounts previously reported for prior quarters during 1997 have been restated for the effect of this amendment. The effect of this amendment was to increase net income available for common shareholders approximately $315, $257 and $200 and to increase net income available per common share by $ 0.03, $ 0.02, and $ 0.02 for the first, second and third quarters of 1997. Independent Auditors' Report The Board of Directors and Shareholders Mid-America Apartment Communities, Inc.: Under date of March 27, 1998, we reported on the consolidated balance sheets of Mid-America Apartment Communities, Inc. (the Company) as of December 31, 1997 and 1996 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997 as contained in the annual report to shareholders. Our report refers to the Company's change in its accounting method to capitalize replacement purchases for major appliances and carpet in 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents, fairly in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Memphis, Tennessee March 27, 1998 Mid-America Apartment Communities, Inc. Schedule III Real Estate and Accumulated Depreciation at December 31, 1997 (Dollars in thousands)
Initial Cost --------------------- Building and Property Name Location Encumbrances Land Fixtures - --------------- ------------- ------------ ------- ---------- The Advantages Jackson, MS - (1) $422 $3,727 McKellar Woods Memphis, TN 8,357 737 13,200 Pine Trails Clinton, MS 1,357 178 2,728 Reflection Pointe Jackson, MS 5,882 710 8,770 Riverhills Grenada, MS 851 153 2,092 Woodridge Jackson, MS 4,789 471 5,522 Greenbrook Memphis, TN 15,477 2,100 24,468 Hamilton Pointe Chattanooga, TN - (1) 686 6,281 Hidden Creek Chattanooga, TN - (1) 895 8,098 Steeplechase Hixson, TN -(9) 217 1,957 Cedar Mill (7) Memphis, TN 2,487 475 6,546 Clearbrook Village Memphis, TN 1,162 260 3,658 Crossings Memphis, TN - (1) 554 2,216 Eastview Memphis, TN 3,286 700 9,646 Gleneagles Memphis, TN - (1) 443 3,983 The Park Estate Memphis, TN 1,471 178 1,141 Winchester Square Memphis, TN - (1) 350 7,279 Post House North Jackson, TN 3,680 381 4,299 Post House Jackson Jackson, TN 5,140 443 5,078 The Oaks Jackson, TN - (1) 177 1,594 The Corners Winston-Salem, NC 4,306 685 6,165 Park Haywood Greenville, SC -(9) 325 2,925 Hickory Farm Memphis, TN - (1) 580 5,220 Lakeshore Landing Jackson, MS - (1) 480 4,320 Woodstream Greensboro, NC 5,491 953 8,599 Stonemill Village Louisville, KY - (1) 1,169 10,518 Canyon Creek St. Louis, MO - (1) 880 7,923 Whispering Oaks Little Rock, AR 3,000 506 4,551 Pear Orchard Jackson, MS -(9) 1,352 12,168 Celery Stalk Dallas, TX 8,460 1,463 13,165 Lane at Towne Crossing Mesquite, TX 5,696 1,038 9,338 Hollybrook Dalton, GA 2,520 405 3,646 Green Tree Place Woodlands, TX 3,180 539 4,850 Redford Park Conroe, TX 3,000 509 4,580 MacArthur Ridge Irving, TX 7,524 1,131 10,183 Lincoln on the Green Memphis, TN -(10) 1,498 13,484 Brentwood Downs Nashville, TN 6,678 1,193 10,739 Shenandoah Ridge Augusta, GA -(9) 650 5,850 Westborough Crossing Katy, TX 3,958 677 6,091 Sailwinds at Lake Magdalene Tampa, FL 15,950 2,212 19,909 Woodbridge at the Lake Jacksonville, FL 3,672 645 5,804 Lakepointe Lexington, KY -(9) 411 3,699 The Mansion Lexington, KY 4,140 694 6,242 The Village Lexington, KY -(9) 900 8,097 Cypresswood Court Spring, TX 3,330 577 5,190 The Lodge at Timberglen Dallas, TX 4,740 825 7,422 Calais Forest Little Rock, AR 5,610 1,026 9,244 The Fairways Columbia, SC 7,641 910 8,207 Kirby Station Memphis, TN -(9) 1,148 10,337 Belmere Tampa, FL -(9) 851 7,667 Williamsburg Village Jackson, TN -(9) 523 4,711 Fairways @ Royal Oak Cincinnati, OH -(9) 814 7,335 Tanglewood Anderson, SC 2,576 427 3,853 Woods at Post House Jackson, TN 5,313 240 6,839 Somerset Jackson, MS -(9) 477 4,294 Highland Ridge Greenville, SC -(3) 482 4,337 Spring Creek Greenville, SC -(3) 597 5,374 St. Augustine Jacksonville, FL -(4) 2,858 6,475 Cooper's Hawk Jacksonville, FL -(4) 854 7,500 Marsh Oaks Atlantic Beach, FL -(9) 244 2,829 Park at Hermitage Nashville, TN 8,190 1,524 14,800 Anatole Daytona Beach, FL 7,000 1,227 5,879 The Savannahs Melbourne, FL -(4) 582 7,868 Stassney Woods Austin, TX 4,825 1,621 7,501 Travis Station Austin, TX 4,265 2,282 6,169 Runaway Bay Mt. Pleasant, SC -(3) 1,085 7,269 The Township Hampton, VA -(2) 1,509 8,189 Lakeside Jacksonville, FL -(9) 1,431 12,883 Crosswinds Jackson, MS -(9) 1,535 13,826 Sutton Place HornLake, MS -(9) 894 8,053 Savannah Creek Southaven, MS -(9) 778 7,013 Napa Valley Little Rock, AR -(9) 960 8,642 Tiffany Oaks Altamonte Springs, FL -(9) 1,024 9,219 Lincoln on the Green -II Memphis, TN - - 6,999 Howell Commons Greenville, SC -(9) 1,304 11,740 Balcones Woods Austin, TX 8,986 1,598 14,398 Westside Creek I Little Rock, AR -(9) 616 5,559 Fairways at Hartland Bowling Green, KY 4,697 1,038 9,342 Woodhollow Jacksonville, FL 10,149 1,686 15,179 The Woods Austin, TX -(2) 1,012 9,120 Hunters Ridge at Deerwood Jacksonville, FL -(2) 1,533 13,835 Austin Chase Macon, GA 10,182 1,409 12,687 Westside Creek II Little Rock, AR 4,958 654 5,904 Woodwinds Aiken, SC 3,532 503 4,540 Hermitage at Beechtree Cary, NC -(9) 900 8,099 Sterling Ridge Augusta, GA 4,805 772 6,949 Colony at Southpark Aiken, SC - 757 6,820 Fountain Lake Brunswick, GA 3,005 502 4,551 Hidden Lake I Union City, GA 4,583 675 6,128 Hidden Lake II Union City, GA -(9) 621 5,587 Hidden Oaks I Albany, GA - 364 3,300 Hidden Oaks II Albany, GA 2,470 306 2,774 High Ridge Athens, GA -(9) 884 7,958 Paddock Club Columbia I Columbia, SC -(2) 1,040 9,360 Paddock Club Huntsville Huntsville, AL -(2) 830 7,470 Paddock Club Jacksonville I Jacksonville, FL -(10) 963 8,739 Paddock Club Lakeland I Lakeland, FL -(10) 951 8,630 Paddock Club Lakeland II Lakeland, FL -(10) 1,303 11,822 Paddock Club Tallahassee I Tallahassee, FL -(2) 950 8,550 Paddock Park I Ocala, FL 6,805 901 8,177 Paddock Park II Ocala, FL -(2) 1,383 12,547 Park Place Spartanburg, SC -(9) 723 6,504 Park Walk College Park, GA 3,438 536 4,859 Regency Club Albany, GA - 198 1,795 River Trace I Memphis, TN 5,832 881 7,996 River Trace II Memphis, TN 5,739 741 6,727 Riverwind Columbus, GA - 108 979 Southland Station I Warner Robins, GA -(9) 777 6,992 Southland Station II Warner Robins, GA - 693 6,292 Three Oaks I Valdosta, GA 2,894 462 4,188 Three Oaks II Valdosta, GA 2,978 460 4,170 The Vistas Macon, GA 4,130 595 5,403 Westbury Creek Augusta, GA 3,207 400 3,626 Westbury Springs Lilburn, GA 4,307 665 6,038 Whispering Pines I LaGrange, GA 2,770 454 4,116 Whispering Pines II LaGrange, GA 2,561 370 3,354 Whisperwood Columbus, GA -(2) 2,330 20,970 Whisperwood Spa I Columbus, GA -(2) 1,510 13,590 Wildwood I Thomasville, GA 2,112 438 3,971 Wildwood II Thomasville, GA 2,046 372 3,372 Willow Creek Columbus, GA -(9) 614 5,523 Windridge Chattanooga, TN 5,558 817 7,416 2000 Wynnton Columbus, GA - 192 1,741 Paddock Club Tallahassee II Tallahassee, FL 4,727 530 4,805 Paddock Club Jacksonville II Jacksonville, FL -(10) 689 6,255 Paddock Club Columbia II Columbia, SC -(2) 800 7,200 Paddock Club Florence Florence, KY 9,723 1,209 10,969 Paddock Club Greenville Greenville, SC -(2) 1,200 10,800 Paddock Club Brandon I Brandon, FL -(2) 2,100 18,900 Terraces at Towne Lake I Woodstock, GA 15,246 1,689 15,321 Paddock Club Jacksonville III Jacksonville, FL -(10) 642 5,756 -------- -------- --------- Total apartments 326,444 109,380 975,666 Other real estate assets: - ------------------------ Commercial properties, net Various 2,844 682 7,187 Construction in progress Various -(2) 9,259 24,458 Land held for future developments Various - 7,991 858 -------- -------- --------- Total other 2,844 17,932 32,503 -------- -------- --------- Total real estate assets $329,288 $127,312 $1,008,169 ======== ======== ========= Mid-America Apartment Communities, Inc. Schedule III Real Estate and Accumulated Depreciation at December 31, 1997 (Dollars in thousands) Cost capitalized Gross amount Subsequent to carried at Acquisition December 31, 1997 (5) ----------------- --------------------------- Building Building and and Property Name Location Land fixtures Land fixtures Total - --------------------- -------------- ---- -------- ----- -------- ----- The Advantages Jackson, MS - $704 $422 $4,431 $4,853 McKellar Woods Memphis, TN - 1,295 737 14,495 15,232 Pine Trails Clinton, MS - 464 178 3,192 3,370 Reflection Pointe Jackson, MS 140 2,129 850 10,899 11,749 Riverhills Grenada, MS - 177 153 2,269 2,422 Woodridge Jackson, MS - 231 471 5,753 6,224 Greenbrook Memphis, TN 25 3,438 2,125 27,906 30,031 Hamilton Pointe Chattanooga, TN - 718 686 6,999 7,685 Hidden Creek Chattanooga, TN - 1,050 895 9,148 10,043 Steeplechase Hixson, TN - 1,087 217 3,044 3,261 Cedar Mill (7) Memphis, TN - 1,101 475 7,647 8,122 Clearbrook Village Memphis, TN - 391 260 4,049 4,309 Crossings Memphis, TN - 443 554 2,659 3,213 Eastview Memphis, TN - 1,084 700 10,730 11,430 Gleneagles Memphis, TN - 1,238 443 5,221 5,664 The Park Estate Memphis, TN - 737 178 1,878 2,056 Winchester Square Memphis, TN - 713 350 7,992 8,342 Post House North Jackson, TN - 560 381 4,859 5,240 Post House Jackson Jackson, TN - 437 443 5,515 5,958 The Oaks Jackson, TN - 531 177 2,125 2,302 The Corners Winston-Salem, NC - 459 685 6,624 7,309 Park Haywood Greenville, SC 35 2,250 360 5,175 5,535 Hickory Farm Memphis, TN - 337 580 5,557 6,137 Lakeshore Landing Jackson, MS - 466 480 4,786 5,266 Woodstream Greensboro, NC - 558 953 9,157 10,110 Stonemill Village Louisville, KY - 945 1,169 11,463 12,632 Canyon Creek St. Louis, MO 220 1,414 1,100 9,337 10,437 Whispering Oaks Little Rock, AR - 1,422 506 5,973 6,479 Pear Orchard Jackson, MS - 982 1,352 13,150 14,502 Celery Stalk Dallas, TX - 1,104 1,463 14,269 15,732 Lane at Towne Crossing Mesquite, TX - 899 1,038 10,237 11,275 Hollybrook Dalton, GA - 767 405 4,413 4,818 Green Tree Place Woodlands, TX - 465 539 5,315 5,854 Redford Park Conroe, TX - 624 509 5,204 5,713 MacArthur Ridge Irving, TX - 473 1,131 10,656 11,787 Lincoln on the Green Memphis, TN - 660 1,498 14,144 15,642 Brentwood Downs Nashville, TN - 563 1,193 11,302 12,495 Shenandoah Ridge Augusta, GA - 1,678 650 7,528 8,178 Westborough Crossing Katy, TX - 491 677 6,582 7,259 Sailwinds at Lake Magdalene Tampa, FL - 6,667 2,212 26,576 28,788 Woodbridge at the Lake Jacksonville, FL - 659 645 6,463 7,108 Lakepointe Lexington, KY - 571 411 4,270 4,681 The Mansion Lexington, KY - 529 694 6,771 7,465 The Village Lexington, KY - 757 900 8,854 9,754 Cypresswood Court Spring, TX - 582 577 5,772 6,349 The Lodge at Timberglen Dallas, TX - 1,309 825 8,731 9,556 Calais Forest Little Rock, AR - 1,042 1,026 10,286 11,312 The Fairways Columbia, SC - 327 910 8,534 9,444 Kirby Station Memphis, TN - 1,753 1,148 12,090 13,238 Belmere Tampa, FL - 808 851 8,475 9,326 Williamsburg Village Jackson, TN - 407 523 5,118 5,641 Fairways @ Royal Oak Cincinnati, OH - 617 814 7,952 8,766 Tanglewood Anderson, SC - 477 427 4,330 4,757 Woods at Post House Jackson, TN - 474 240 7,313 7,553 Somerset Jackson, MS - 523 477 4,817 5,294 Highland Ridge Greenville, SC - 178 482 4,515 4,997 Spring Creek Greenville, SC - 276 597 5,650 6,247 St. Augustine Jacksonville, FL - 1,582 2,858 8,057 10,915 Cooper's Hawk Jacksonville, FL - 479 854 7,979 8,833 Marsh Oaks Atlantic Beach, FL - 459 244 3,288 3,532 Park at Hermitage Nashville, TN - 825 1,524 15,625 17,149 Anatole Daytona Beach, FL - 422 1,227 6,301 7,528 The Savannahs Melbourne, FL - 670 582 8,538 9,120 Stassney Woods Austin, TX - 823 1,621 8,324 9,945 Travis Station Austin, TX - 616 2,282 6,785 9,067 Runaway Bay Mt. Pleasant, SC - 442 1,085 7,711 8,796 The Township Hampton, VA - 125 1,509 8,314 9,823 Lakeside Jacksonville, FL - 2,034 1,431 14,917 16,348 Crosswinds Jackson, MS - 830 1,535 14,656 16,191 Sutton Place HornLake, MS - 537 894 8,590 9,484 Savannah Creek Southaven, MS - 365 778 7,378 8,156 Napa Valley Little Rock, AR - 448 960 9,090 10,050 Tiffany Oaks Altamonte Springs, FL - 500 1,024 9,719 10,743 Lincoln on the Green -II Memphis, TN - 5,827 - 12,826 12,826 Howell Commons Greenville, SC - 316 1,304 12,056 13,360 Balcones Woods Austin, TX - 1,010 1,598 15,408 17,006 Westside Creek I Little Rock, AR - 180 616 5,739 6,355 Fairways at Hartland Bowling Green, KY - 466 1,038 9,808 10,846 Woodhollow Jacksonville, FL - 562 1,686 15,741 17,427 The Woods Austin, TX - 163 1,012 9,283 10,295 Hunters Ridge at Deerwood Jacksonville, FL - 849 1,533 14,684 16,217 Austin Chase Macon, GA - 6 1,409 12,693 14,102 Westside Creek II Little Rock, AR - 13 654 5,917 6,571 Woodwinds Aiken, SC - 31 503 4,571 5,074 Hermitage at Beechtree Cary, NC - 7 900 8,106 9,006 Sterling Ridge Augusta, GA - 24 772 6,973 7,745 Colony at Southpark Aiken, SC - 3 757 6,823 7,580 Fountain Lake Brunswick, GA - 281 502 4,832 5,334 Hidden Lake I Union City, GA - 5 675 6,133 6,808 Hidden Lake II Union City, GA - 3 621 5,590 6,211 Hidden Oaks I Albany, GA - 2 364 3,302 3,666 Hidden Oaks II Albany, GA - 2 306 2,776 3,082 High Ridge Athens, GA - 2 884 7,960 8,844 Paddock Club Columbia I Columbia, SC - 3 1,040 9,363 10,403 Paddock Club Huntsville Huntsville, AL - 3 830 7,473 8,303 Paddock Club Jacksonville I Jacksonville, FL - 1 963 8,740 9,703 Paddock Club Lakeland I Lakeland, FL - 6 951 8,636 9,587 Paddock Club Lakeland II Lakeland, FL - 1,303 11,822 13,125 Paddock Club Tallahassee I Tallahassee, FL - 7 950 8,557 9,507 Paddock Park I Ocala, FL - 9 901 8,186 9,087 Paddock Park II Ocala, FL - 13 1,383 12,560 13,943 Park Place Spartanburg, SC - 2 723 6,506 7,229 Park Walk College Park, GA - 4 536 4,863 5,399 Regency Club Albany, GA - 3 198 1,798 1,996 River Trace I Memphis, TN - 4 881 8,000 8,881 River Trace II Memphis, TN - 3 741 6,730 7,471 Riverwind Columbus, GA - 108 979 1,087 Southland Station I Warner Robins, GA - 14 777 7,006 7,783 Southland Station II Warner Robins, GA - 3 693 6,295 6,988 Three Oaks I Valdosta, GA - 8 462 4,196 4,658 Three Oaks II Valdosta, GA - 4 460 4,174 4,634 The Vistas Macon, GA - 595 5,403 5,998 Westbury Creek Augusta, GA - 400 3,626 4,026 Westbury Springs Lilburn, GA - 1 665 6,039 6,704 Whispering Pines I LaGrange, GA - 1 454 4,117 4,571 Whispering Pines II LaGrange, GA - 370 3,354 3,724 Whisperwood Columbus, GA - 17 2,330 20,987 23,317 Whisperwood Spa I Columbus, GA - 9 1,510 13,599 15,109 Wildwood I Thomasville, GA - 1 438 3,972 4,410 Wildwood II Thomasville, GA - 1 372 3,373 3,745 Willow Creek Columbus, GA - 3 614 5,526 6,140 Windridge Chattanooga, TN - 2 817 7,418 8,235 2000 Wynnton Columbus, GA - 0 192 1,741 1,933 Paddock Club Tallahassee II Tallahassee, FL - 0 530 4,805 5,335 Paddock Club Jacksonville II Jacksonville, FL - - 689 6,255 6,944 Paddock Club Columbia II Columbia, SC - 1 800 7,201 8,001 Paddock Club Florence Florence, KY - - 1,209 10,969 12,178 Paddock Club Greenville Greenville, SC - - 1,200 10,800 12,000 Paddock Club Brandon I Brandon, FL - - 2,100 18,900 21,000 Terraces at Towne Lake I Woodstock, GA - - 1,689 15,321 17,010 Paddock Club Jacksonville III Jacksonville, FL - - 640 5,756 6,396 Total apartments 420 74,073 109,800 1,049,739 1,159,549 ----- ------- ------- --------- --------- Other real estate assets: - ------------------------- Commercial properties, net Various - 1,719 682 8,906 9,562 Construction in progress Various - 9,259 24,458 33,717 Land held for future developments Various - 7,991 858 8,849 ----- ------- ------- --------- --------- Total other 0 1,719 17,932 34,222 52,128 ----- ------- ------- --------- --------- Total real estate assets $420 $75,792 $127,732 $1,083,961 $1,211,669 ===== ======= ======= ========= ========= Mid-America Apartment Communities, Inc. Schedule III Real Estate and Accumulated Depreciation at December 31, 1997 (Dollars in thousands) Life used to compute depreciation in latest Accumulated Date of income Property Name Location Depreciation Net Construction statement(6) - ------------------------ ------------- ------------ ------- ------------ ----------- The Advantages Jackson, MS ($1,118) $3,735 1984 5 - 40 McKellar Woods Memphis, TN (2,105) 13,124 1976 5 - 40 Pine Trails Clinton, MS (1,088) 2,282 1978 5 - 40 Reflection Pointe Jackson, MS (1,265) 10,484 1986 5 - 40 Riverhills Grenada, MS (440) 1,982 1972 5 - 40 Woodridge Jackson, MS (729) 5,495 1987 5 - 40 Greenbrook Memphis, TN (3,885) 26,146 1986 5 - 40 Hamilton Pointe Chattanooga, TN (1,062) 6,623 1989 5 - 40 Hidden Creek Chattanooga, TN (2,447) 7,596 1987 5 - 40 Steeplechase Hixson, TN (576) 2,685 1986 5 - 40 Cedar Mill (7) Memphis, TN (1,257) 6,865 1973/1986 5 - 40 Clearbrook Village Memphis, TN (575) 3,734 1974 5 - 40 Crossings Memphis, TN (643) 2,570 1974 5 - 40 Eastview Memphis, TN (1,709) 9,721 1974 5 - 40 Gleneagles Memphis, TN (1,567) 4,097 1975 5 - 40 The Park Estate Memphis, TN (816) 1,240 1974 5 - 40 Winchester Square Memphis, TN (1,149) 7,193 1973 5 - 40 Post House North Jackson, TN (589) 4,651 1987 5 - 40 Post House Jackson Jackson, TN (680) 5,278 1987 5 - 40 The Oaks Jackson, TN (322) 1,980 1978 5 - 40 The Corners Winston-Salem, NC (900) 6,409 1982 5 - 40 Park Haywood Greenville, SC (583) 4,952 1983 5 - 40 Hickory Farm Memphis, TN (781) 5,356 1985 5 - 40 Lakeshore Landing Jackson, MS (659) 4,607 1974 5 - 40 Woodstream Greensboro, NC (1,210) 8,900 1983 5 - 40 Stonemill Village Louisville, KY (1,562) 11,070 1985 5 - 40 Canyon Creek St. Louis, MO (1,200) 9,237 1987 5 - 40 Whispering Oaks Little Rock, AR (806) 5,673 1978 5 - 40 Pear Orchard Jackson, MS (1,717) 12,785 1985 5 - 40 Celery Stalk Dallas, TX (1,852) 13,880 1978 5 - 40 Lane at Towne Crossing Mesquite, TX (1,345) 9,930 1983 5 - 40 Hollybrook Dalton, GA (501) 4,317 1972 5 - 40 Green Tree Place Woodlands, TX (671) 5,183 1984 5 - 40 Redford Park Conroe, TX (662) 5,051 1984 5 - 40 MacArthur Ridge Irving, TX (1,291) 10,496 1991 5 - 40 Lincoln on the Green Memphis, TN (1,696) 13,946 1988 5 - 40 Brentwood Downs Nashville, TN (1,394) 11,101 1986 5 - 40 Shenandoah Ridge Augusta, GA (930) 7,248 1982 5 - 40 Westborough Crossing Katy, TX (809) 6,450 1984 5 - 40 Sailwinds at Lake Magdalene Tampa, FL (3,377) 25,411 1975 5 - 40 Woodbridge at the Lake Jacksonville, FL (789) 6,319 1985 5 - 40 Lakepointe Lexington, KY (501) 4,180 1986 5 - 40 The Mansion Lexington, KY (797) 6,668 1987 5 - 40 The Village Lexington, KY (1,067) 8,687 1989 5 - 40 Cypresswood Court Spring, TX (682) 5,667 1984 5 - 40 The Lodge at Timberglen Dallas, TX (1,063) 8,493 1984 5 - 40 Calais Forest Little Rock, AR (1,177) 10,135 1987 5 - 40 The Fairways Columbia, SC (960) 8,484 1992 5 - 40 Kirby Station Memphis, TN (1,367) 11,871 1978 5 - 40 Belmere Tampa, FL (960) 8,366 1984 5 - 40 Williamsburg Village Jackson, TN (578) 5,063 1987 5 - 40 Fairways @ Royal Oak Cincinnati, OH (876) 7,890 1988 5 - 40 Tanglewood Anderson, SC (469) 4,288 1980 5 - 40 Woods at Post House Jackson, TN (934) 6,619 1995 5 - 40 Somerset Jackson, MS (540) 4,754 1981 5 - 40 Highland Ridge Greenville, SC (348) 4,649 1984 5 - 40 Spring Creek Greenville, SC (433) 5,814 1984 5 - 40 St. Augustine Jacksonville, FL (869) 10,046 1987 5 - 40 Cooper's Hawk Jacksonville, FL (758) 8,075 1987 5 - 40 Marsh Oaks Atlantic Beach, FL (315) 3,217 1986 5 - 40 Park at Hermitage Nashville, TN (1,449) 15,700 1987 5 - 40 Anatole Daytona Beach, FL (600) 6,928 1986 5 - 40 The Savannahs Melbourne, FL (807) 8,313 1990 5 - 40 Stassney Woods Austin, TX (787) 9,158 1985 5 - 40 Travis Station Austin, TX (624) 8,443 1987 5 - 40 Runaway Bay Mt. Pleasant, SC (710) 8,086 1988 5 - 40 The Township Hampton, VA (729) 9,094 1987 5 - 40 Lakeside Jacksonville, FL (1,026) 15,322 1985 5 - 40 Crosswinds Jackson, MS (738) 15,453 1988/1990 5 - 40 Sutton Place HornLake, MS (436) 9,048 1991 5 - 40 Savannah Creek Southaven, MS (372) 7,784 1989 5 - 40 Napa Valley Little Rock, AR (374) 9,676 1984 5 - 40 Tiffany Oaks Altamonte Springs, FL (332) 10,411 1985 5 - 40 Lincoln on the Green -II Memphis, TN (106) 12,720 1997 5 - 40 Howell Commons Greenville, SC (380) 12,980 1986/1988 5 - 40 Balcones Woods Austin, TX (385) 16,621 1983 5 - 40 Westside Creek I Little Rock, AR (149) 6,206 1984 5 - 40 Fairways at Hartland Bowling Green, KY (247) 10,599 1996 5 - 40 Woodhollow Jacksonville, FL (412) 17,015 1986 5 - 40 The Woods Austin, TX (215) 10,080 1977 5 - 40 Hunters Ridge at Deerwood Jacksonville, FL (308) 15,909 1987 5 - 40 Austin Chase Macon, GA (186) 13,916 1996 5 - 40 Westside Creek II Little Rock, AR (52) 6,519 1986 5 - 40 Woodwinds Aiken, SC (40) 5,034 1988 5 - 40 Hermitage at Beechtree Cary, NC (47) 8,959 1988 5 - 40 Sterling Ridge Augusta, GA (41) 7,704 1986 5 - 40 Colony at Southpark Aiken, SC (20) 7,560 1989/1991 5 - 40 Fountain Lake Brunswick, GA (16) 5,318 1983 5 - 40 Hidden Lake I Union City, GA (21) 6,787 1985 5 - 40 Hidden Lake II Union City, GA (21) 6,190 1987 5 - 40 Hidden Oaks I Albany, GA (11) 3,655 1979 5 - 40 Hidden Oaks II Albany, GA (10) 3,072 1980 5 - 40 High Ridge Athens, GA (29) 8,815 1987 5 - 40 Paddock Club Columbia I Columbia, SC (33) 10,370 1989 5 - 40 Paddock Club Huntsville Huntsville, AL (26) 8,277 1989 5 - 40 Paddock Club Jacksonville I Jacksonville, FL (30) 9,673 1989 5 - 40 Paddock Club Lakeland I Lakeland, FL (30) 9,557 1988 5 - 40 Paddock Club Lakeland II Lakeland, FL (41) 13,084 1990 5 - 40 Paddock Club Tallahassee I Tallahassee, FL (30) 9,477 1990 5 - 40 Paddock Park I Ocala, FL (28) 9,059 1986 5 - 40 Paddock Park II Ocala, FL (44) 13,899 1988 5 - 40 Park Place Spartanburg, SC (22) 7,207 1987 5 - 40 Park Walk College Park, GA (17) 5,382 1985 5 - 40 Regency Club Albany, GA (6) 1,990 1983 5 - 40 River Trace I Memphis, TN (28) 8,853 1981 5 - 40 River Trace II Memphis, TN (23) 7,448 1985 5 - 40 Riverwind Columbus, GA (3) 1,084 1983 5 - 40 Southland Station I Warner Robins, GA (21) 7,762 1987 5 - 40 Southland Station II Warner Robins, GA (22) 6,966 1990 5 - 40 Three Oaks I Valdosta, GA (15) 4,643 1983 5 - 40 Three Oaks II Valdosta, GA (15) 4,619 1984 5 - 40 The Vistas Macon, GA (19) 5,979 1985 5 - 40 Westbury Creek Augusta, GA (13) 4,013 1984 5 - 40 Westbury Springs Lilburn, GA (21) 6,683 1983 5 - 40 Whispering Pines I LaGrange, GA (14) 4,557 1982 5 - 40 Whispering Pines II LaGrange, GA (12) 3,712 1984 5 - 40 Whisperwood Columbus, GA (74) 23,243 1981/1986 5 - 40 Whisperwood Spa I Columbus, GA (48) 15,061 1988 5 - 40 Wildwood I Thomasville, GA (14) 4,396 1980 5 - 40 Wildwood II Thomasville, GA (12) 3,733 1984 5 - 40 Willow Creek Columbus, GA (26) 6,116 1971/1977 5 - 40 Windridge Chattanooga, TN (26) 8,209 1984 5 - 40 2000 Wynnton Columbus, GA (6) 1,927 1983 5 - 40 Paddock Club Tallahassee II Tallahassee, FL (17) 5,318 1995 5 - 40 Paddock Club Jacksonville II Jacksonville, FL (22) 6,922 1996 5 - 40 Paddock Club Columbia II Columbia, SC (25) 7,976 1995 5 - 40 Paddock Club Florence Florence, KY (38) 12,140 1994 5 - 40 Paddock Club Greenville Greenville, SC (38) 11,962 1996 5 - 40 Paddock Club Brandon I Brandon, FL (66) 20,934 1997 5 - 40 Terraces at Towne Lake I Woodstock, GA (53) 16,957 1997 5 - 40 Paddock Club Jacksonville III Jacksonville, FL (20) 6,376 1997 5 - 40 rounding??? (20) (17) -------- --------- Total apartments (76,129) 1,083,410 Other real estate assets: - ------------------------- Commercial properties, net Various (860) 8,728 Various 5 - 40 Construction in progress Various 33,717 N/A N/A Land held for future developments Various 8,849 N/A N/A -------- --------- Total other (860) 51,294 -------- --------- Total real estate assets ($76,989)$1,134,704 ======== =========
[FN] (1) These 12 Properties are encumbered by a $43.4 million note payable. (2) Subject to a negative pledge pursuant to the agreement in respect of the Credit Line, with an outstanding balance of $45.2 million at December 31, 1997. The line had a variable interest rate at December 31, 1997 of 7.07%. (3) These three properties are encumbered by a $10.3 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 6.09%. (4) These three properties are encumbered by a $16.5 million mortgage securing a tax-exempt bond amortizing over 25 years with an average interest rate of 5.75%. (5) The aggregate cost for Federal income tax purposes was approximately $1,115 million at December 31, 1997. The total gross amount of real estate assets for GAAP purposes exceeds the aggregate cost for Federal income tax purposes, principally due to purchase accounting adjustments recorded under generally accepted accounting principles. (6) Depreciation is on a straight line basis over the estimated useful asset life which ranges from 8 to 40 years for land improvements and buildings and 5 years for furniture, fixtures and equipment. (7) Includes adjacent 68-unit Mendenhall Townhomes. (8) Lincoln Phase II is under construction - completed First quarter 1998. (9) These 26 communities are encumbered by a $140 million MSMC loan with an average interest rate of 6.62%. (10) These six communities are encumbered by a $47.5 million note payable. MID - AMERICA APARTMENT COMMUNITIES, INC. Schedule III Real Estate Investments and Accumulated Depreciation A summary of activity for real estate investments and accumulated depreciation is as follows:
Years Ended December 31, ----------------------------- 1997 1996 1995 -------- -------- -------- (Dollars in thousands) Real estate investments: Balance at beginning of year $ 641,893 $ 578,788 $ 434,460 Acquisitions 140,858 66,258 15,561 Improvements and development 36,298 20,634 25,590 Assets acquired from business combination 392,644 - 103,177 Disposition of real estate assets - (23,787) - ----------- --------- --------- Balance at end of year $ 1,211,693 $ 641,893 $ 578,788 =========== ========= ========= Accumulated depreciation: Balance at beginning of year $ 49,558 $ 29,504 $ 13,386 Depreciation 27,431 21,249 16,118 Disposition of real estate assets - (1,195) - ----------- -------- -------- Balance at end of year $ 76,989 $ 49,558 $ 29,504 =========== ======== ========
[FN] The Company's consolidated balance sheet at December 31, 1997 includes accumulated depreciation of $860 thousand in the caption "Commercial properties, net". EX-3.1 2 EXHIBIT 3.1 AMENDED AND RESTATED CHARTER OF MID-AMERICA APARTMENT COMMUNITIES, INC. The undersigned corporation hereby amends and restates its Charter under the Tennessee Business Corporation Act. A. The name of the corporation is Mid-America Apartment Communities, Inc. (the "Corporation"). B. The Charter of the Corporation is amended and restated as follows: Name. The name of the corporation (which is hereinafter called the "Corporation") is Mid-America Apartment Communities, Inc. For Profit. The Corporation is for profit. Principal and Registered Office. The address of the Corporation's initial registered office and its principal office is 6584 Poplar Avenue, Suite 340, Memphis, Tennessee 38138. Initial Registered Agent. The name of the Corporation's initial registered agent at that office is George E. Cates. Incorporator. The name and address of the incorporator is John A. Good, 6075 Poplar Avenue, Suite 623, Memphis, Tennessee 38119. Authorized Capital Stock. The total number of shares of stock which the Corporation has authority to issue is twenty million (20,000,000) shares of Common Stock, $.01 par value per share, and five million (5,000,000) shares of Preferred Stock, $.01 par value per share. The Preferred Stock may be issued from time to time by the Board of Directors of the Corporation, in such series and with such preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or other provisions as may be fixed by the Board of Directors. Directors. The Corporation shall have a Board of Directors consisting of not less than three (3) nor more than nine (9) members unless otherwise determined from time to time by resolution adopted by the affirmative vote of at least eighty percent (80%) of the members of the Board of Directors. However, the number of directors shall never be less than the minimum number required by the Tennessee Business Corporation Act. A director need not be a shareholder. Directors shall be divided into three (3) classes as nearly equal in number as possible. The initial term of Class I directors shall expire at the annual shareholder meeting in 1994. The initial term of Class II directors shall expire at the annual shareholder meeting in 1995 and the initial term of the Class III director shall expire at the annual shareholder meeting in 1996. At each annual shareholder meeting, the shareholders shall elect one or more directors to serve a three-year term of the class of directors whose term is expiring at such annual meeting and until their successors are elected and qualify. Independent Directors. Notwithstanding anything herein to the contrary, at all times (except during a period not to exceed sixty (60) days following the death, resignation, incapacity or removal from office of a director prior to expiration of the director's term of office), a majority of the Board of Directors shall be comprised of persons who are not officers or employees of the Corporation, "Affiliates" of the Corporation, or "Affiliates" of any subsidiary of the Corporation, or any partnership which is an Affiliate of the Corporation. Definition of Affiliate. For purposes of the foregoing subsection, "Affiliate" of a person shall mean any person that, directly or indirectly, controls or is controlled by or is under common control with such person, any other person that owns, beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital stock, shares or equity interests of such person, or any officer, director, employee, partner or trustee of such person or any person controlling, controlled by or under common control with such person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such person). The term "person" means and includes individuals, corporations, general and limited partnerships, stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. For the purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, through the ownership of voting securities, partnership interests or other equity interests. Amendment of this Article. Notwithstanding any other provision of this Charter or the Bylaws of the Corporation (and notwithstanding that some lesser percentage may be specified by law, this Charter or the Bylaws of the Corporation), the provisions of this Article 7 shall not be amended, altered, changed or repealed without the affirmative vote of at least eighty percent (80%) of the members of the Board of Directors or the affirmative vote of the holders of not less than a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting as a single voting group. Dividends. All shares of Common Stock will participate equally in dividends payable to holders of shares of Common Stock when and as declared by the Board of Directors and in net assets available for distribution to holders of shares of Common Stock upon liquidation or dissolution. Preemptive Rights. No holder of shares of capital stock of the Corporation shall have any preemptive or preferential right to subscribe to or purchase any shares of any class of the Corporation, whether now or hereafter authorized; any warrants, rights, or options to purchase any such shares; or any securities or obligations convertible into any such shares or into warrants, rights, or options to purchase any such shares. Limitation of Director Liability. No director of the Corporation shall be liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director; provided, that this provision shall not eliminate or limit the liability of a director: (A) for any breach of the director's duty of loyalty to the Corporation or its shareholders; (B) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (C) under Section 48-18-304 of the Tennessee Business Corporation Act. This provision shall not eliminate or limit the liability of a director for any act or omission occurring prior to the date when this provision became effective. No amendment of this provision after the time of its effectiveness shall affect in any manner the elimination or limitation on liability of directors for acts occurring prior to the time of such amendment. Indemnification. Any word or words defined in Part 5 of Chapter 18 of Title 48 of the Tennessee Code Annotated, as amended from time to time (the "Indemnification Article") used in this Article 11, shall have the same meaning as provided in the Indemnification Article. The Corporation shall indemnify and advance expenses to a director, officer, employee or agent of the Corporation in connection with a proceeding to the fullest extent permitted by and in accordance with the Indemnification Article. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or who, while a director, officer, employee or agent of the Corporation is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against liability asserted against or incurred by such person in that capacity or arising from such person's status as a director, officer, employee or agent, whether or not the Corporation would have power to indemnify such person against the same liability under the Indemnification Article. REIT Status. The Corporation shall seek to elect and maintain status as a real estate investment trust ("REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). It shall be the duty of the Board of Directors to ensure that the Corporation satisfies the requirements for qualification as a REIT under the Code, including, but not limited to, the ownership of its outstanding stock, the nature of its assets, the sources of its income, and the amount and timing of its distributions to its shareholders. The Board of Directors shall take no action to disqualify the Corporation as a REIT or to otherwise revoke the Corporation's election to be taxed as a REIT without the affirmative vote of two- thirds (2/3) of the number of shares of Common Stock entitled to vote on such matter at a special meeting of the Shareholders. Restrictions on Transfer. Affidavits of Transferees. Whenever it is deemed by the Board of Directors to be prudent in protecting the tax status of the Corporation as a REIT under the Code and regulations issued under the Code, the Board of Directors may require to be filed with the Corporation a statement or affidavit from each proposed transferee of shares of capital stock of the Corporation setting forth the number of such shares already owned by the transferee and any related person(s) specified in the form prescribed by the Board of Directors for that purpose. Any contract for the sale or other transfer of shares of capital stock of the Corporation shall be subject to this provision. Affidavits of Shareholders. Prior to any transfer or transaction which would cause a shareholder to own, directly or indirectly, shares in excess of the "Limit" as defined in paragraph (d) of this Article 14, and in any event upon demand of the Board of Directors, such shareholder shall file with the Corporation an affidavit setting forth the number of shares of capital stock of the Corporation (a) owned directly and (b) owned indirectly by the person filing the affidavit. For purposes of this paragraph (b), shares of capital stock not owned directly shall be deemed to be owned indirectly by a person if that person would be the beneficial owner of such shares for purposes of Rule 13d-3, or any successor rule thereto, promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") and/or would be considered to own such shares by reason of the attribution rules in Section 544 (as modified by Section 856(h)) of the Code or the regulations issued thereunder. The affidavit to be filed with the Corporation shall set forth all information required to be reported in returns filed by shareholders under Treasury Regulation Section 1.857-9 issued under the Code or similar provisions of any successor regulation, and in reports to be filed under section 13(d), or any successor rule thereto, of the Exchange Act. The affidavit, or an amendment thereto, shall be filed with the Corporation within ten (10) days after demand therefor and at least fifteen (15) days prior to any transfer or transaction which, if consummated, would cause the filing person to hold a number of shares of capital stock of the Corporation in excess of the "Limit" as defined in paragraph (d) of this Article 14. Void Transfers. Notwithstanding any other provision hereof to the contrary except Section 14(e), any acquisition of shares of capital stock that causes any person's ownership to exceed the Limit (as defined in Section 14(d)) or would result in the disqualification of the Corporation as a REIT under the Code shall be void ab initio to the fullest extent permitted under applicable law and the intended transferee of those shares shall be deemed never to have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then those shares shall be deemed to be Excess Shares (as defined in Section 14(d)) and subject to Section 14(f) below. Excess Shares. Except as provided in Section 14(e), no person shall at any time directly or indirectly own in the aggregate more than 9.9% of the outstanding shares of capital stock of the Corporation (the "Limit"). Shares which but for this Section 14(d) would be owned by a person and would, at any time, be in excess of the Limit shall be deemed "Excess Shares" and shall become subject to Section 14(f). For the purpose of determining whether shares are Excess Shares, "ownership" of shares shall be deemed to include shares constructively owned by a person under the provisions of Section 544 (as modified by Section 856(h)) of the Code. All shares of capital stock of the Corporation which any person has the right to acquire upon exercise of outstanding rights, options and warrants, and upon conversion of any securities convertible into those shares, if any, shall be considered outstanding for purposes of determining the applicable Limit if such inclusion will cause such person to own more than the Limit. Exemptions. The ownership limits set forth in Sections 14(c) and 14(d) shall not apply to the acquisition of shares of capital stock of the Corporation by an underwriter in a public offering of those shares or in any transaction involving the issuance of shares of capital stock by the Corporation in which the Board of Directors determines that the underwriter or other person or party initially acquiring those shares will timely distribute those shares to or among others so that, following such distribution, the ownership of those shares will not be in violation of Section 14(c) or 14(d). The Board of Directors in its discretion may exempt from the Limit and from the filing requirements of Section 14(b) ownership or transfers of certain designated shares of capital stock of the Corporation while owned by or transferred to a person who has provided the Board of Directors with evidence and assurances acceptable to the Board of Directors that the qualification of the Corporation as a REIT under the Code and the regulations issued under the Code would not be jeopardized thereby. Treatment of Excess Shares. (i) If the Board of Directors of the Corporation shall at any time determine that a transaction has taken place within the scope of Section 14(c) or that any person intends to acquire Excess Shares, the Board of Directors shall take such action as it or they deem advisable to refuse to give effect to or to prevent such transaction, including but not limited to refusing to give effect to such transfer on the books of the Corporation. (ii) If, notwithstanding Sections 14(c) and (f)(i), a purported transferee ("Record Transferee") acquires Excess Shares, the Record Transferee shall be deemed to have received such Excess Shares as agent on behalf of, and to hold such Excess Shares in trust for the exclusive benefit of, the person(s) to whom the Excess Shares may be later transferred pursuant to Section 14(f)(iii). The Record Transferee shall have no right to receive dividends or other distributions on the Excess Shares and shall have no right to vote the Excess Shares. The Record Transferee shall have no claim, cause of action, or any other recourse whatsoever against the transferor of the Excess Shares. The Record Transferee's sole right with respect to the trust shall be to receive, at the Corporation's sole and absolute discretion, either (i) an amount upon the resale of the Excess Shares as directed by the Corporation pursuant to Section 14(f)(iii) or (ii) an amount upon the redemption of the Excess Shares by the Corporation pursuant to Section 14(f)(iii). (iii) The Board of Directors shall, within six months after receiving notice of a transfer that causes a Record Transferee to own Excess Shares, either, in its sole and absolute discretion, (a) direct the Record Transferee to sell all of the Excess Shares held in trust pursuant to Section 14(f)(ii) for cash in such manner as the Board of Directors directs or (b) redeem such Excess Shares for the price and on the terms set forth in Section 14(f)(iii)(b) on such date within such six month period as the Board of Directors may determine. (a) If the Board of Directors directs the Record Transferee to sell the Excess Shares held in trust, the Record Transferee shall pay the Corporation out of the proceeds of such sale all expenses incurred by the Corporation in connection with such sale plus any remaining amount of such proceeds that exceeds the amount paid by the Record Transferee for the Excess Shares, and the Record Transferee shall be entitled to retain only any proceeds in excess of such amount required to be paid to the Corporation. (b) If the Board of Directors determines to redeem the Excess Shares, written notice of redemption (the "Notice") shall be provided to the Record Transferee of the Excess Shares not less than one week prior to the redemption date (the "Redemption Date") determined by the Board of Directors and included in the Notice. The redemption price per share to be paid for Excess Shares will be equal to the lesser of (i) the principal price paid by the Record Transferee from whom Excess Shares are being redeemed or (ii) (a) the closing price per share of the shares on the principal national securities exchange on which the shares are listed or admitted to trading, (b) if the shares are not so listed or admitted to trading, the closing bid price on the date of Notice as reported on the National Association of Securities Dealers, Inc. System, if quoted thereon (the price per share determined under clause (a) or (b) being herein defined as the "Market Price"), or (c) if a Market Price is not determinable in accordance with either clause (a) or (b) of this sentence, the net asset value per share on the date of Notice determined in good faith by the Board of Directors, (iii) the Market Price on the date on which the person would but for this Article 14 have been deemed to acquire ownership of the Excess Shares, or (iv) the maximum price allowed under Part 5 of Chapter 35 of Title 48 of the Tennessee Code Annotated. The amount payable to the Record Transferee for Excess Shares so redeemed may be paid, at the option of the Corporation, in the form of the number of "Units" equal to the number of shares redeemed divided by the "Conversion Factor," as those terms are defined in the Partnership Agreement of Mid- America Apartment Communities, Inc. The redemption price for any shares of capital stock of the Corporation so redeemed shall be paid on the Redemption Date. From and after the Redemption Date, the holder of any redeemed shares of capital stock of the Corporation shall cease to be entitled to any distributions or other benefits with respect to redeemed shares, except the right to receive payment of the redemption price fixed as aforesaid. Application of Article. Nothing contained in this Article 14 or in any other provision hereof shall limit the authority of the Board of Directors to take any and all other action as it in its sole discretion deems necessary or advisable to protect the Corporation and the interests of its shareholders by maintaining the Corporation's eligibility to be, and preserving the Corporation's status as, a REIT under the Code. Definition of "Person". For purposes of this Article only, the term "person" shall include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, consortia, companies, trusts, banks, trust companies, land trusts, common law trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. Severability. If any provision of this Article 14 or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issue, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of that court. Legend. Certificates representing shares of capital stock of the Corporation shall bear a legend referencing the restrictions set forth in this Article 14. NYSE Settlement. Nothing in these Articles of Incorporation shall preclude any settlement transaction with respect to the Common Stock of the Company entered into through the facilities of the New York Exchange. C. The Amended and Restated Charter was approved by unanimous written consent of the sole shareholder of the Corporation on January 10th, 1994. DATED: January 10th, 1994 Mid-America Apartment Communities, Inc. By: /s/ George E. Cates George E. Cates, President EX-3.3 3 EXHIBIT 3.3 ARTICLES OF MERGER OF THE CATES COMPANY WITH AND INTO MID-AMERICA APARTMENT COMMUNITIES, INC. The under signed corporation, pursuant to 48-21-205 of the Tennessee Business Corporation Act, hereby submits the following Articles of Merger to effect the merger of The Cates Company, a Tennessee corporation, with and into Mid- America Apartment Communities, Inc., a Tennessee corporation, and, in that regard, states the following: 1. The Plan of Merger is as follows: (a) The names of the constituent corporations are as follows: The Cates Company, a Tennessee corporation ("Cates") Mid-America Apartment Communities, Inc., a Tennessee corporation ("MAC") (b) The corporation surviving the merger (the "Surviving Corporation") will be Mid-America Apartment Communities, Inc., a Tennessee corporation. (c) From and after the effective time of the merger, the following effects of the merger shall be recognized by operation of law: Charter and Bylaws. The Charter of MAC as in effect immediately prior to the effective time shall be and remain the Charter of the Surviving Corporation. The Bylaws of MAC as in effect immediately prior to the effective time shall be and remain the Bylaws of the Surviving Corporation until altered, amended, or repealed in accordance with the Tennessee Business Corporation Act. Names of Surviving Corporation. As of the effective time, the name of the Surviving Corporation shall be Mid-America Apartment Communities, Inc. Capitalization. As of the effective time, the number of authorized shares of the Surviving Corporation shall be 20,000,000 shares of Common Stock having $.01 per share par value and 5,000,000 shares of Preferred Stock having $.01 per share per value. Officers and Directors. As of and after the effective time, the directors and officers of MAC shall be the directors and officers of the Surviving Corporation. Registered and Principal Office. As of and after the effective time, the registered and principal business office of the Surviving Corporation shall be located at 6584 Poplar Avenue, Suite 340, Memphis (Shelby County) Tennessee 38138. Retention of Rights and Properties. As of the effective time, the separate existence and corporate organization of Cates shall cease and Cates shall be merged with and into MAC as the Surviving Corporation. The Surviving Corporation shall, from and after the effective time, possess all the rights, privileges, powers, immunities, and franchises of both Cates and MAC of whatsoever nature (public or private) and description. The Merger shall have the effects set forth in 48-21- 106 of the Tennessee Business Corporation Act. All assets and property, real, personal, and mixed, and all debts due on whatever account, including, without limitation, shares or subscriptions to shares, all other choses in action, rights, and credits, and all and every other interest of or owed by or due or that would inure to either Cates or MAC shall immediately, by operation of law, be taken or deemed to be transferred to and vested in the Surviving Corporation without any further conveyance, transfer, act, or deed, and the title to any real estate or any interest therein vested in either Cates or Motor Cargo Industries, Inc. shall not revert or be impaired in any way by reason of the merger. Assumption of Liabilities. As of the effective time, the Surviving Corporation shall be deemed to be a continuation of the entity of each constituent corporation, with the effect set forth in 48-21-106 of the Tennessee Business Corporation and shall succeed to and shall assume such rights and obligations and the duties and liabilities and obligations of both Cates and MAC, and any claim existing or action or proceeding pending by or against Cates or MAC may be prosecuted as if the merger had not taken place. Neither the rights of creditors nor any liens upon the property of Cates or MAC shall be impaired by the merger. (d) At the effective time, each share of Cates common stock, without par value, held by non-dissenting shareholders and not exchanged for cash in the manner hereinbelow described shall, by virtue of the merger of Cates with and into MAC and without any action being taken by the holder thereof, be exchanged for and converted into two thousand five hundred (2,500) fully paid and nonassessable shares of common stock of MAC, having a par value of $.01 per share (the "MAC Stock") (e) At the effective time, each share of common stock of MAC then issued and outstanding shall remain issued and outstanding as the common stock of the Surviving Corporation. 2. The foregoing Plan of Merger was duly adopted and approved by the sole shareholder and the Board of Directors of MAC by action without a meeting on January 18, 1994. The Plan of Merger was duly adopted and approved by the Board of Directors of Cates by action without a meeting on January 26, 1994 and by the Shareholders of Cates at a meeting duly held on January 26, 1994. 3. The merger of Cates with and into MAC shall be effective at 8:00 a.m. Central Standard Time on February 4, 1994. Dated: February 2, 1994 Mid-America Apartment Communities, Inc. By: Lynn A. Johnson, Secretary EX-3.6 4 EXHIBIT 3.6 MID-AMERICA APARTMENT COMMUNITIES, INC. ARTICLES OF AMENDMENT TO THE AMENDED AND RESTATED CHARTER Mid-America Apartment Communities, Inc., a Tennessee corporation (the "Corporation"), certifies to the Tennessee Secretary of State that: FIRST: The Corporation's Board of Directors recommended an amendment (the "Amendment") to the Corporation's Amended and Restated Charter (the "Charter") to increase the number of authorized shares of the Corporation's Common Stock, $.01 par value per share (the "Common Stock") from 20 million shares to 50 million shares, to the Corporation's shareholders pursuant to a proxy statement dated October 13, 1997; SECOND: The Corporation's shareholders approved the Amendment at a special shareholders meeting duly called and held pursuant to Tennessee law and the Corporation's bylaws on November 14, 1997; THIRD: Section 6 is hereby amended by deleting the first sentence contained in Section 6 and, in its place, inserting the following: 6. Authorized Capital Stock. The total number of shares of stock which the Corporation has authority to issue is fifty million (50,000,000) shares of Common Stock, $.01 par value per share, and five million (5,000,000) shares of Preferred Stock, $.01 par value per share. FOURTH: This Amendment shall be effective at the time the Tennessee Secretary of State accepts this Amendment for filing. IN WITNESS WHEREOF, MID-AMERICA APARTMENT COMMUNITIES, INC. has caused these presents to be signed in its name and on its behalf by its Chief Financial Officer on this the 17th day of November 1997. MID-AMERICA APARTMENT COMMUNITIES,INC. By: /s/ Simon R.C. Wadsworth Title: Chief Financial Officer EX-3.81 5 EXHIBIT 3.8A Articles of Merger of Flournoy Development Company (a Georgia corporation) with and into Mid-America Apartment Communities, Inc. (a Tennessee corporation) Pursuant to the provisions of Section 48-21-105 of the Tennessee Business Corporation Act, and Section 14-2-1101 of the Georgia General Corporation Law, the undersigned corporations adopt the following Articles of Merger for the purpose of merging into a single corporation: 1. The Agreement and Plan of Merger is attached hereto as Exhibit "A" and incorporated herein by reference. 2. Flournoy Development Company, a Georgia Corporatio, adopted the Agreement and Plan of Merger pursuant to an Action by Written Consent of the Board of Directors of the corporation on September 15, 1997 and an Action by Written Consent of the Shareholders of the corporation on September 15, 1997. 3. Mid-America Apartment Communities, a Tennessee Corporation, adopted the Agreement and the Plan of Merger pursuant to an Action by Written Consent of the Board of Directors, without Shareholder approval, on September 15, 1997. 4. The merger shall be effective upon the filing with the office of the Secretary of State for the State of Tennessee and the Secretary of State for the State of Georgia. IN WITNESS WHEREOF, the undersigned have caused this document to be executed the day of November, 1997. FLOURNOY DEVELOPMENT COMPANY By: Name: Title: MID-AMERICA APARTMENT COMMUNITIES, INC. By: Name: Title: EX-3.82 6 EXHIBIT 3.8 AGREEMENT AND PLAN OF MERGER OF FLOURNOY DEVELOPMENT COMPANY (a Georgia corporation) WITH AND INTO MID-AMERICA APARTMENT COMMUNITIES, INC. (a Tennessee corporation) AGREEMENT AND PLAN OF MERGER (the "Agreement and Plan of Merger"), dated as of November ___, 1997, by and between FLOURNOY DEVELOPMENT COMPANY, a corporation organized and existing under the laws of the State of Georgia ("FDC") and MID-AMERICA APARTMENT COMMUNITIES, INC., a corporation organized and existing under the laws of the State of Tennessee ("MAAC"), with reference to the following recitals: WITNESSETH: WHEREAS, FDC is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia. The entire authorized capital stock of FDC consists of Ten Million (10,000,000) shares of common stock, no par value per share (the "FDC Common Stock"), of which two million five hundred forty-nine thousand four hundred ninety-five (2,549,495) shares are issued and outstanding. WHEREAS, MAAC is a corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee. The entire authorized capital stock of MAAC consists of fifty million (50,000,000) shares of common stock, par value $.01 per share (the "MAAC Common Stock"), and five million (5,000,000) shares of preferred stock, of which sixteen million eight hundred ninety-four thousand two hundred thirty-two (16,894,232) shares of MAAC Common Stock and three million nine hundred thirty-eight thousand eight hundred thirty (3,938,830) shares of preferred stock are issued and outstanding; and WHEREAS, the Board of Directors of each of FDC and MAAC and the shareholder(s) of FDC have adopted resolutions approving this Agreement and Plan of Merger in accordance with the Georgia Business Corporation Code (the "GBCC") and the Tennessee Business Corporation Act (the "TBCA"). NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants herein contained and intending to be legally bound, agree as follows: I. Parties to Merger. FDC and MAAC (such corporate parties to the merger being hereinafter sometimes collectively referred to as the "Constituent Corporations") shall effect a merger (the "Merger") in accordance with and subject to the terms and conditions of this Agreement and Plan of Merger. II. Merger: Service of Process. At the Effective Time (as defined in Section 3 hereof), FDC shall be merged with and into MAAC, which latter corporation shall be, and is hereinafter sometimes referred to as, the "Surviving Corporation". The Surviving Corporation, which shall continue to be governed by the laws of the State of Tennessee, hereby agrees that it may be served with process in the State of Georgia in any proceeding for enforcement of any obligation of FDC, as well as for enforcement of any obligation of the Surviving Corporation arising from the Merger, and the Surviving Corporation hereby irrevocably appoints the Secretary of State of the State of Georgia as its agent to accept service of process in any such suit or other proceedings. A copy of such process shall be mailed by the Secretary of State of the State of Georgia to the Surviving Corporation at 6584 Poplar Avenue, Suite 340, Memphis, Tennessee 38138. III. Filing and Effective Time. Articles of Merger to be filed with the Secretary of the State of Tennessee and a Certificate of Merger to be filed with the Secretary of State of the State of Georgia (the "Merger Articles") and such other documents and instruments as are required by, and complying in all respects with, the GBCC and the TBCA shall be delivered to the appropriate state officials for filing. The Merger shall become effective immediately upon filing of the Merger Articles (the "Effective Time"). IV. Charter. At the Effective Time, the Charter of MAAC shall be and thereafter remain the Charter of the Surviving Corporation, until amended in accordance with applicable law, and the Surviving Corporation shall continue to be a corporation organized and governed by the laws of the State of Tennessee. V. Bylaws. At the Effective Time, the Bylaws of MAAC shall be and thereafter remain the Bylaws of the Surviving Corporation until altered, amended or repealed in the manner therein provided in accordance with the Charter and Bylaws of the Surviving Corporation and applicable law. VI. Directors and Officers. At the Effective Time, the directors and the officers of MAAC shall be the directors and the officers of the Surviving Corporation; each such director and officer shall hold office until his resignation or removal, in accordance with the Charter and Bylaws of the Surviving Corporation and applicable law. VII. Effect of Merger. At the Effective Time, the Merger shall have the effect set forth in the GBCC and the TBCA. VIII. Further Assurances. Each of the Constituent Corporations shall use their best efforts to take action and to do all things necessary in order to consummate and make effective the actions contemplated in this Agreement and Plan of Merger. If at any time the Surviving Corporation, or its successors or assigns, shall consider to be advised that any further assignments or assurances in law or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its rights, title or interest in, to or under any of the rights, properties or assets of FDC acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the merger, or (b) otherwise carry out the purposes of this Agreement and Plan of Merger, FDC and its proper officers and directors shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Agreement and Plan of Merger, and the proper officers and directors of the Surviving Corporation are fully authorized in the name of FDC or otherwise to take any and all such action. IX. Capital Stock. At the Effective Time: (1) Each share of Common Stock of FDC (other than any dissenting shares), without any action on the part of the holder thereof, shall be converted into the right to receive six hundred eight thousand eighty-nine millionths (.608089) shares of MAAC Common Stock (the "Conversion Ratio"). MAAC shall deliver the shares of MAAC Common Stock at, or as soon as practicable after, the Effective Time. Each dissenting share shall be converted into the right to receive payment from the Surviving Corporation with respect thereto in accordance with the provisions of the GBCC. The Conversion Ratio shall be subject to equitable adjustment in the event of any stock split, stock dividend, reverse stock split, or other change in number of shares of FDC Common Stock or shares of MAAC Common Stock outstanding. For all purposes, each share of MAAC Common Stock is agreed to have a value of Twenty-Eight Dollars ($28.00) per share. (2) On and after the Effective Date, the holders of FDC Common Stock shall cease to have any rights as shareholders of FDC except for the right to surrender their stock in exchange for payment of the merger consideration. (2) Each share of Common Stock of MAAC issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding. X. No Fractional Shares. No fractional shares of MAAC Common Stock shall be issued pursuant to the Merger. In lieu of the issuance of any such fractional share of MAAC Common Stock, cash adjustments will be paid to holders in respect of any fractional share of MAAC Common Stock that would otherwise be issuable. The amount of such adjustment shall be the product of such fraction of a share of MAAC Common Stock multiplied by $28.00. XI. Dissenting Shares. Notwithstanding anything herein to the contrary, shares of FDC Common Stock that are outstanding immediately prior to the Effective Date and that are held by shareholders, if any, who are entitled to assert a right to dissent from the merger and who demand and validly perfect their rights to receive the "fair value" of their shares with respect to the merger under the relevant provisions of the GBCC (the "Dissenting Shares") shall be entitled solely to the payment of the "fair value" of such shares in accordance with the provisions of the GBCC; except that (i) if such demand to receive "fair value" shall be withdrawn upon the consent of the Surviving Corporation, (ii) if this Agreement and Plan of Merger shall be terminated, or the merger shall not be consummated, (iii) if no demand or petition for the determination of "fair value" by a court shall have been made or filed within the time provided in the provisions of the GBCC or (iv) if a court of competent jurisdiction shall determine that such holder of Dissenting Shares is not entitled to the relief provided by the provisions of the GBCC, then the right of such holder of Dissenting Shares to be paid the "fair value" of his shares of FDC Common Stock shall cease and, with respect to clauses (i), (iii) and (iv) above, such Dissenting Shares shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Date, the right to receive the merger consideration with respect thereto, without any interest thereon, and with respect to clause (ii) above, the status of such shareholder shall be restored retroactively without prejudice to any corporate proceeding which may have been taken during the interim. XII. Amendment or Termination. Notwithstanding shareholder approval of this Agreement and Plan of Merger, this Agreement and Plan of Merger may be amended or terminated at any time on or before the Effective Date by agreement of the Boards of Directors of the Constituent Corporations, provided that no amendment may be made which decreases the Conversion Ratio. XIII. Counterparts. This Agreement and Plan of Merger may be executed in counterparts each of which shall be deemed an original and all of which together shall be considered one and the same agreement. The parties agree that a facsimile may be executed as an original. IN WITNESS WHEREOF, the parties hereto, pursuant to the approval and authority duly given by resolutions adopted by their respective Boards of Directors and the FDC shareholders, have duly executed this Agreement and Plan of Merger as of the day and year first written above. FLOURNOY DEVELOPMENT COMPANY By: Title: MID-AMERICA APARTMENT COMMUNITIES, INC. By: Title: EX-3.9 7 EXHIBIT 3.9 MID-AMERICA APARTMENT COMMUNITIES, INC. ARTICLES OF AMENDMENT TO THE AMENDED AND RESTATED CHARTER Mid-America Apartment Communities, Inc., a Tennessee corporation (the "Corporation"), certifies to the Tennessee Secretary of State that: FIRST: The Corporation's Board of Directors recommended an amendment (the "Amendment") to the Corporation's Amended and Restated Charter (the "Charter") to increase the number of authorized shares of the Corporation's Common Stock, $.01 par value per share (the "Common Stock") from 20 million shares to 50 million shares, to the Corporation's shareholders pursuant to a proxy statement dated October 13, 1997; SECOND: The Corporation's common and preferred shareholders approved the Amendment at a special shareholders meeting duly called and held pursuant to Tennessee law and the Corporation's bylaws on November 14, 1997, as reconvened following adjournment on December 12, 1997; THIRD: Section 6 is hereby amended by deleting the first sentence contained in Section 6 and, in its place, inserting the following: 6. Authorized Capital Stock. The total number of shares of stock which the Corporation has authority to issue is fifty million (50,000,000) shares of Common Stock, $.01 par value per share, and twenty million (20,000,000) shares of Preferred Stock, $.01 par value per share. FOURTH: This Amendment shall be effective at the time the Tennessee Secretary of State accepts this Amendment for filing. IN WITNESS WHEREOF, MID-AMERICA APARTMENT COMMUNITIES, INC. has caused these presents to be signed in its name and on its behalf by its Secretary on this the 15th day of December 1997. MID-AMERICA APARTMENT COMMUNITIES, INC. By: /s/ Lynn A. Johnson Title: Lynn A. Johnson, Secretary EX-4.1 8 [front of certificate] COMMON STOCK COMMON STOCK [ Logo of MAC ] Number Shares MA Incorporated Under the Laws This Certificate is transferrable in of the State of Tennessee Birmingham, AL or New York,NY CUSIP 59522J 10 3 See reverse for certain definitions MID-AMERICA APARTMENT COMMUNITIES, INC. This certifies that is the owner of fully paid and non-assessable shares of the 8 7/8% Series B Cumulative Preferred Stock Liquidation Preference $25 per share of MID-AMERICA APARTMENT COMMUNITIES, INC. (the "Corporation") transferrable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Charter of the Corporation, as amended and restated, and its Bylaws, as amended, to all of which the holder, by acceptance hereof assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal and the facsimile signature of its duly authorized officers. Dated: [Facsimile Signature] ATTEST: Secretary and Treasurer [Facsimile Signature] Chairman and Chief Executive Officer Countersigned and registered: AMSOUTH BANK Transfer Agent and Registrar By: Authorized Signature [reverse of certificate] MID-AMERICA APARTMENT COMMUNITIES, INC. To preserve the qualification of the company as a "real estate investment trust" under the internal revenue code of 1986, as amended, under the company's charter transfer of the shares represented hereby is restricted and may be stopped if a person or group of persons directly or through the operation of certain attribution rules would own in excess of 9.9% of the outstanding stock of the company after the transfer. The company may require evidence of a proposed transferee's status and ownership interest before permitting any transfer and may redeem any shares held in violation of the preceding paragraph. The company will furnish to any shareholder without charge a full statement of the transfer restrictions upon request made to the secretary of the company at its principal office. The shares represented hereby are subject to all of the provisions of the charter and bylaws of the corporation, each as amended from time to time, to all of which the holder by acceptance hereof assents. The corporation will furnish to any shareholder, upon request and without charge, a full statement of the designations, relative rights, preferences and limitations of the shares of each class authorized to be issued, as well as variations in the rights, preferences and limitations determined for each series of a class, so far as the same has been determined by the Board of Directors under its authority. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws and regulations: TEN COMM - as tenants in coUNIF GIFT MIN ACT _______Custodian_______ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as Act _______ tenants in common (State) Additional abbreviations may also be used though not in the above list. For Value Received, _______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE Please print or typewrite name and address including postal zip code of assignee shares represented by this Certificate, and do hereby irrevocably constitute and appoint ____________________________________________________ attorney to transfer the said shares on the books of the Corporation before power of substitution and the premises. Date:__________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. Signature Guaranteed: The signatures should be guaranteed by an eligible guarantor institution (Banks,Stockbrokers,Savings and Loan Associations and Credit Unions with members; approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. EX-10.2 9 EXHIBIT 10.2 EMPLOYMENT AGREEMENT BETWEEN MID-AMERICA APARTMENT COMMUNITIES, INC. AND GEORGE E. CATES AGREEMENT effective February 4, 1994, by and between Mid-America Apartment Communities, Inc., a Tennessee corporation (the "Company"), and George E. Cates (the "Executive"). W I T N E S S E T H: WHEREAS, the Company is a self-administered and self- managed equity real estate investment trust which has been formed to make investments in multifamily residential properties (the "Properties") and to otherwise carry on the management, marketing, acquisition and development activities formerly carried on by The Cates Company; and WHEREAS, the Company desires to employ the Executive to devote full time to the business of the Company (including, without limitation, executive management of the Company and its Properties) and to serve as the President and Chief Executive Officer (the "CEO") of the Company; and WHEREAS, the Executive desires to be so employed on the terms and subject to the conditions hereinafter stated. NOW, THEREFORE, in consideration of the premises and mutual obligations hereinafter set forth the parties agree as follows: A. Employment. The Company shall employ the Executive, and the Executive agrees to be so employed, in the capacity of the President and CEO of the Company to serve for the Term hereof, subject to earlier termination as hereinafter provided. B. Term. The term of the Executive's employment hereunder (the "Term") shall be for a period of five years, commencing on February 4, 1994, and continuing until February 3, 1999, unless terminated earlier as provided herein. C. Services. The Executive shall devote substantially all of his time and attention and best efforts during normal business hours to the Company's affairs. Specifically, the Executive shall have complete senior management authority and responsibility with respect to the day to day operations and long term management of the Company and its Properties, as well as implementation of the long range growth strategy of the Company, consistent with directions from the Board of Directors. He shall have full authority and responsibility, subject to the general direction, approval and control of the Company's Board of Directors, for formulating policies and administering the Company and its Properties in all respects. He shall have the authority to hire and fire Company personnel, to retain consultants when he deems necessary to implement the Company policies, to execute contracts on behalf of the Company in the ordinary course of business and to negotiate for and cause the Company to acquire new Properties at the direction of the Board of Directors. D. Compensation. During the Term, the Company shall pay the Executive for his services an annual base salary of Two Hundred and Twenty-Five Thousand Dollars ($225,000.00), to be paid in semi-monthly payments of Nine Thousand Three Hundred Seventy-Five Dollars ($9,375.00), such base salary subject to any increases in base compensation as approved by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"). In addition, the Company may from time to time pay the Executive other incentive compensation, including but not limited to stock options or restricted stock, in accordance with rules and criteria established by the Compensation Committee. Such criteria may include, but not be limited to, the growth in Funds from Operations per Unit and share of Common Stock and/or performance goals. E. Benefits. The Company agrees to provide the Executive with the following benefits: (1) Insurance. The Company shall provide the Executive with and pay the cost of Group Life and Health Insurance in amounts established by the Compensation Committee. (2) Vacation. The Executive shall be entitled each year to a vacation, during which time his compensation shall be paid in full. The time allotted for such vacation shall be four (4) weeks. (3) Employee Benefits. This Agreement shall not be in lieu of any rights, benefits and privileges to which the Executive may be entitled as a management level employee of the Company, including but not limited to any retirement, pension, profit-sharing, insurance, hospital or other plans which may now be in effect or which may hereafter be adopted. The Executive shall have the same rights and privileges to participate in such plans and benefits as any other management level employee during the Term. F. Expenses. The Company recognizes that the Executive will have to incur certain out-of-pocket expenses, including but not limited to travel expenses, related to his services and the Company's business and the Company agrees to reimburse the Executive for all reasonable expenses necessarily incurred by him in the performance of his duties upon presentation of a voucher or documentation indicating the amount and business purposes of any such expenses. G. Termination in Case of Death or Disability. In case of the Executive's death or permanent disability (defined hereby as complete physical or mental inability, confirmed by a licensed physician, to perform the services described in Section 3 above that continues for a period of one hundred twenty (120) consecutive days), the Company may elect to terminate the Executive pursuant to the terms of Section 10. H. Definitions. For purposes of this Agreement, the following terms shall have the following definitions: (1) "Voluntary Termination" means the Executive's voluntary termination of his employment hereunder, which may be affected by the Executive's giving the Board 90 days written notice of the Executive's desire to terminate his employment or the Executive's failure to provide substantially all the services described in Section 3 hereof for a period greater than two (2) consecutive weeks by reason of the Executive's voluntary refusal to perform such services. Notwithstanding the foregoing, if the Executive gives notice of Voluntary Termination and, prior to the expiration of the 90-day notice period, the Executive voluntarily refuses or fails to provide substantially all the services described in Section 3 hereof for a period greater than two consecutive weeks, the Voluntary Termination shall be deemed to be effective as of the date on which the Executive so ceases to carry out his duties. For purposes of this Section 8, voluntary refusal to perform services shall not include taking vacation otherwise permitted in accordance with Section 5(b) hereof, the Executive's failure to perform services on account of his illness or the illness of a member of his immediate family, provided such illness is adequately substantiated at the reasonable request of the Company or any other absence from service with the written consent of the Board. (2) "Termination Without Cause" means the termination of the Executive's employment by the Company for any reason other than Voluntary Termination or Termination With Cause. (3) "Termination With Cause" means the termination of the Executive's employment by act of the Board for any of the following reasons: (i) the Executive's conviction of a crime involving some act of dishonesty or moral turpitude (specifically excepting simple misdemeanors not involving acts of dishonesty and all traffic violations); (ii) the Executive's theft, embezzlement, misappropriation of or intentional and malicious infliction of damage to the Company property or business opportunity; (iii) the Executive's intentional and material breach of the noncompetition covenant in Section 11 hereof; (iv) the Executive's continuous neglect of his duties hereunder or his continuous failure or refusal to follow any reasonable, unambiguous duly adopted written direction of the Board or any duly constituted committee thereof that is not inconsistent with the description of the Executive's duties set forth in Section 3 above; and (v) the Executive's abuse of alcohol, drugs or other substances, or his engaging in other deviant personal activities in a manner that, in the reasonable judgment of the Board, adversely affects the reputation, goodwill or business position of the Company. (4) "Involuntary Termination" means conduct on the part of the Company that constitutes continuous and material interference by the Company with the Executive's performance of his duties as set forth in Section 3 hereof or the intentional or material breach by the Company of this Agreement. I. Voluntary Termination; Termination With Cause. If the Executive shall cease being an employee of the Company on account of a Voluntary Termination or shall suffer a Termination With Cause, then the Executive shall not be entitled to any compensation after the effective date of such Voluntary Termination or Termination With Cause (except compensation accrued but unpaid on the date of such event). In the event of such Voluntary Termination or Termination With Cause, the Executive shall continue to be subject to the noncompetition covenant contained in Section 11 hereof for the remainder of the five-year period from the date of execution of the Agreement. J. Death or Disability; Termination Without Cause; or Involuntary Termination. If the Executive shall suffer a death, disability, Involuntary Termination or a Termination Without Cause, then the Company shall pay the Executive cash compensation in a lump sum equal to the lesser of one year's base salary or the amount which may be deducted by the Company pursuant to Section 280G of the Internal Revenue Code. K. Noncompetition. For five years from the execution of the Agreement, the Executive shall not, other than in his capacity as officer and director of the Company, directly or indirectly, for his own account or for the account of others, either as an officer, director, stockholder, owner, partner, promoter, employee, consultant, advisor, agent, manager or in any other capacity, engage in the acquisition, development, operation, management, leasing or landscaping of any multifamily community. Such prohibition extends to all multifamily communities, wherever located, during the Term of the Executive's employment and to multifamily properties within thirty (30) miles of any one of the Properties after termination of the Agreement. In the event of Termination for Cause or Voluntary Termination, the Executive shall continue to be restricted by this Section 11 for the remainder of the five-year period. The Executive agrees that damages at law for violation of the restrictive covenant contained herein would not be an adequate or proper remedy to the Company, and that should the Executive violate or threaten to violate any of the provisions of such covenant, the Company, its successors or assigns, shall be entitled to obtain a temporary or permanent injunction against Executive in any court having jurisdiction over the person and the subject matter, prohibiting any further violation of any such covenants. The injunctive relief provided herein shall be in addition to any award of damages, compensatory, exemplary or otherwise, payable by reason of such violation. Furthermore, the Executive acknowledges that this Agreement has been negotiated at arms length by the parties, neither being under any compulsion to enter into this Agreement, and that the foregoing restrictive covenant does not in any respect inhibit his ability to earn a livelihood in his chosen profession without violating the restrictive covenant contained herein. The Company by these presents has attempted to limit the Executive's right to compete only to the extent necessary to protect the Company from unfair competition. The Company recognizes, however, that reasonable people may differ in making such a determination. Consequently, the Company agrees that if the scope or enforceability of the restrictive covenant contained herein is in any way disputed at any time, a court or other trier of fact may modify and enforce the covenant to the extent that it believes to be reasonable under the circumstances existing at the time. L. Notices. All notices or deliveries authorized or required pursuant to this Agreement shall be deemed to have been given when in writing and personally delivered or when deposited in the U.S. mail, certified, return receipt requested, postage prepaid, addressed to the parties at the following addresses or to such other addresses as either may designate in writing to the other party: To the Company: Mid-America Apartment Communities, Inc. 6584 Poplar Avenue, Suite 340 Memphis, Tennessee 38138 To the Executive: George E. Cates 6584 Poplar Avenue, Suite 340 Memphis, Tennessee 38138 M. Entire Agreement. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and shall not be modified in any manner except by instrument in writing signed, by or on behalf of, the parties hereto; provided, however, that any amendment or termination of the covenant of noncompetition in Section 11 must be approved by a majority of the Independent Directors of the Company (as defined in the Company's Amended and Restated Charter). This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto. N. Arbitration. Any claim or controversy arising out of, or relating to, this Agreement or its breach, shall be settled by arbitration in accordance with the governing rules of the American Arbitration Association. Judgment upon the award rendered may be entered in any court of competent jurisdiction. O. Applicable Law. This Agreement shall be governed and construed in accordance with the laws of the State of Tennessee. P. Assignment. The Executive acknowledges that his services are unique and personal. Accordingly, the Executive may not assign his rights or delegate his duties or obligations under this Agreement. The Executive's rights and obligations under this Agreement shall inure to the benefit of and shall be binding upon the Executive's successors and assigns. Q. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. IN WITNESS WHEREOF, the parties have executed this Agreement on the 4th day of February, 1994. Mid-America Apartment Communities, Inc. By: _______________________________ ____/S/ George E. Cates George E. Cates EX-10.3 10 EXHIBIT 10.3 MID-AMERICA APARTMENT COMMUNITIES, INC. Second Amended and Restated 1994 Restricted Stock and Stock Option Plan I. Purposes of the Plan The purposes of the Mid-America Apartment Communities, Inc. 1994 Restricted Stock and Stock Option Plan (the "Plan") are to advance the interests of the Company, to increase stockholder value by providing its executive officers and other key employees with a proprietary interest in the growth and performance of the Company and with incentives for continued service with and rewards for outstanding service to the Company, its subsidiaries and/or its affiliates, and to provide the Company and the Operating Partnership (hereinafter defined) with an additional means to attract and retain qualified executive officers and other key employees. The Plan will provide for the issuance of up to 1,000,000 shares of Common Stock and/or units of limited partnership interest in the Operating Partnership redeemable for shares of Common Stock, to the executive officers and key employees of the Company and its subsidiaries and affiliates. To this end, the Compensation Committee of the Company's Board of Directors (the "Committee") may grant stock options and restricted securities awards to executive officers and other key employees of the Company, its subsidiaries and/or its affiliates, on the terms and subject to the conditions set forth in this Plan. I. Definitions As used in the Plan, the following terms shall have the meanings set forth below: A. "Award" means any form of Stock Option or Restricted Securities granted under the Plan, whether singly, in combination, or in tandem, to a Participant by the Committee pursuant to such terms, conditions, restrictions, and/or limitations, if any, as the Committee may establish. B. "Award Agreement" means a written agreement setting forth the terms of an Award. C. "Board" means the Board of Directors of the Company. D. "Class A Common Unit" means a Class A Common Unit of limited partnership interest in the Operating Partnership. E. "Code" means the Internal Revenue Code of 1986, as amended. References to any provision of the Code shall be deemed to include successor provisions thereto and rules and regulations thereunder. F. "Committee" means the Compensation Committee of the Board, each member of which, for purposes of this Plan, shall be a disinterested person within the meaning of Exchange Act Rule 16b-3. G. "Common Stock" means the Common Stock of the Company, $.01 par value. H. "Company" means Mid-America Apartment Communities, Inc., its subsidiaries and its affiliates. I. "Disability" means the inability to substantially perform the usual duties of the person's occupation by reason of a medically determinable physical or mental impairment which can be expected to be of long, continued and indefinite duration as determined by the Committee. J. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. References to any provision of the Exchange Act shall be deemed to include successor provisions thereto and rules and regulations thereunder. K. "Fair Market Value," unless otherwise required by an applicable provision of the Code, as of any date, means the reported last sale price of the Common Stock on such date as reported on the New York Stock Exchange Consolidated Tape. L. "Incentive Stock Option" ("ISO") means any Stock Option intended to be, and designated and qualifying as, an "incentive stock option" within the meaning of Section 422 of the Code. M. "Non-Qualified Stock Option" means any Stock Option awarded under this Plan that is not intended to be an Incentive Stock Option or that fails to meet the requirements applicable to an Incentive Stock Option. N. "Officer" means a person who is considered to be an officer of the Company under Securities Exchange Act Rule 16a-1(f). O. "Operating Partnership" means Mid-America Apartments, L.P., a Tennessee limited partnership, of which the Company is the sole general partner. P. "Option" or "Stock Option" means a right granted pursuant to the Plan to purchase shares of Common Stock, and includes the terms Incentive Stock Option and Non- Qualified Stock Option. Q. "Option Price" or "Exercise Price" means the price per share at which Common Stock may be purchased upon the exercise of an Option. R. "Participant" means any individual to whom an Award has been granted by the Committee under either Plan. S. "Restricted Securities" means shares of Common Stock or Class A Common Units issued pursuant to a Restricted Securities Award which are subject to such conditions, including, without limitation, risks of forfeiture, as may be determined by the Committee and specified in the Award Agreement. T. "Retirement" means retirement from active employment under a retirement plan of the Company, any subsidiary or affiliate, or pursuant to an employment agreement with any of the aforementioned, or termination of employment at or after age 55 under circumstances which the Committee, in its sole discretion, deems equivalent to retirement. U. "Termination of Employment" means the termination of a Participant's active employment with the Company which is not deemed to be a Retirement or a termination due to a Disability. II. Administration A. The Plan shall be administered and interpreted by the Committee. B. The Committee shall have the authority to (a) establish such rules and regulations as it deems necessary for the proper operation and administration of the Plan; (b) select the persons to receive Awards under the Plan; (c) determine the form of an Award, or combinations thereof, and whether such Award is to operate on a tandem basis and/or in conjunction with or apart from other awards made by the Company, either within or outside of this Plan; (d) determine the number of shares of Common Stock or Class A Common Units to be covered by each such Award granted hereunder; (e) determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, any restriction or limitation on transfer, any vesting schedule or acceleration thereof, and any forfeiture provisions or waiver thereof), regarding any Award and the shares of Common Stock and/or Class A Common Units relating thereto, based on such factors as the Committee shall determine, in its sole discretion; (f) determine whether Common Stock or Class A Common Units payable with respect to an Award under this Plan shall be deferred, either automatically or at the election of the Participant; and (g) make any other determination or take any action that the Committee deems necessary or desirable for the administration of the Plan. C. Unless authority is specifically reserved to the Board under the terms of the Plan, the Company's Charter or By-Laws, or applicable law, the Committee shall have sole discretion in exercising authority under the Plan. The Committee may delegate to officers or managers of the Company or any subsidiary the authority, subject to such terms as the Committee shall determine, to perform administrative functions and, with respect to Participants not subject to Section 16 of the Exchange Act, to perform such other functions as the Committee may determine, to the extent permitted under Rule 16b-3 and applicable law. Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board, or the Committee (or any of its members pursuant to any authority duly delegated to any such member) arising out of or in connection with the Plan shall be within the absolute discretion of all or any of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective beneficiaries, heirs, executors, administrators, successors and assigns. III. Eligibility Officers and other key employees (including those who may also be Directors of the Company) of the Company and its present and future subsidiaries and affiliates, including the Operating Partnership, who are not members of the Committee and who are responsible for or contribute to the management, growth and profitability of the business of the Company, are eligible to receive Awards under the Plan. IV. Shares Available for Awards A. The maximum number of shares of Common Stock of the Company that may be used in conjunction with the grant of Awards under the Plan is 1,000,000. In determining the number of shares available from time to time for Awards under the Plan, each Class A Common Unit covered by any Award shall be considered the equivalent of one share of Common Stock, and the Company shall not grant awards involving Class A Common Units in excess of the remaining number of shares of Common Stock available under the Plan. B. Shares of stock which are attributable to Awards which expire or are otherwise terminated, cancelled, surrendered or forfeited, during a calendar year, are available for issuance or use in connection with future Awards, during the calendar year in which they expire or otherwise become available, provided, however, that, if any such shares could not again be available for Awards to a Participant who is subject to Section 16 of the Exchange Act under applicable share counting requirements of Rule 16b-3, such shares shall be available exclusively for Awards to Participants who are not subject to Section 16. C. Shares of Common Stock to be issued under the Plan may be authorized and unissued shares of Common Stock, treasury stock or a combination thereof. D. In the event of a merger, consolidation, reorganization, recapitalization, stock split, stock dividend, other extraordinary dividend or other changes in corporate structure or capitalization affecting the Common Stock, the Committee may make appropriate adjustment in the number of shares or number and kind of other securities subject to options, rights and other Awards granted under the Plan, and/or the exercise price and other terms and conditions of Awards or appropriate adjustment in the maximum number of shares referred to in Section 5 of the Plan, as the Committee may determine to be necessary or appropriate in order to prevent dilution or enlargement of the rights of Participants. V. Awards Under the Plan A. Stock Options. The Committee may grant Incentive Stock Options ("ISO"), Non-Qualified Stock Options or both to purchase shares of Common Stock from the Company to such Officers and other key employees in such amounts and subject to such terms and conditions, as the Committee shall determine in its sole discretion, subject to the provisions of the Plan, provided, however, that in no event may any Stock Option be granted hereunder after the expiration of 10 years after the date of the Plan. The automatic or discretionary grant of "reload" Stock Options is specifically authorized. In the case of ISO's, the terms and conditions of such grants, including the exercise price of the purchase of Common Stock, shall be subject to and comply with the requirements of Section 422 of the Code, as from time to time amended, and any implementing regulations. The exercise price at which shares of Common Stock may be purchased pursuant to the grant of an Option shall be fixed by the Committee at the time of grant; however, the price of an ISO must be equal to or greater than the Fair Market Value of the shares of Common Stock covered thereby. The exercise price of an ISO granted to any Participant who owns shares of Common Stock possessing more than 10% of the total combined voting power of all outstanding shares of Common Stock of the Company must be at least equal to 110% of the fair market value of the shares of Common Stock on the date of grant. Options granted under the Plan will not be ISOs to the extent that the Fair Market Value of the shares of Common Stock with respect to which ISOs first become exercisable in any year exceeds $100,000. B. Restricted Securities Awards. The Committee may grant Restricted Securities Awards ("RSAs") to such Officers and other key employees in such amounts and subject to such terms and conditions as the Committee may determine in its sole discretion, including such restrictions on transferability and other restrictions, vesting or other provisions as the Committee may impose, which restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Committee shall determine. Unless otherwise determined by the Committee at the time of an Award, the holder of an RSA shall have the right to vote the restricted securities and to receive dividends or distributions thereon, unless and until such restricted securities are forfeited. In the event all or any of the shares of Common Stock or Class A Common Units subject to RSA are forfeited due to failure to meet or comply with restrictions imposed by the Committee at the time of grant prior to the lapse of such restrictions, the Company shall repay to the Participant (or the Participant's estate) any cash amount paid by the Participant for such forfeited shares. C. Tandem and Substitute Awards. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan or any award granted under any other plan of the Company, any Subsidiary or Affiliate, or any business entity to be acquired by the Company or a Subsidiary or Affiliate, or any other right of a Participant to receive payment from the Company or any Subsidiary or Affiliate. If an Award is granted in substitution for another Award or award, the Committee shall require the surrender of such other Award or award in consideration for the grant of the new Award. Awards granted in addition to or in tandem with other Awards or awards may be granted either as of the same time as or a different time from the grant of such other Awards or awards. VI. Award Agreements Awards under the Plan shall be evidenced by an agreement approved by the Committee that sets forth the terms, conditions and limitations of an Award. The Committee may amend agreements theretofore entered into, either prospectively or retroactively, including, but not limited to, the acceleration of vesting of or lapse of restrictions on an Award and the extension of time to exercise an Award, except that, no such amendment shall affect the Award in a materially adverse manner without the consent of the Participant (except for an amendment made to cause the Plan to qualify for an exemption provided by Rule 16b-3). VII. Miscellaneous Provisions Related to Participants A. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company. The Company may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. No Participant or other person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. B. Except as may be otherwise provided under Section 6.2, no Award granted under the Plan, unless otherwise provided in the Award Agreement, shall entitle the holder of such Award to any dividend, voting or other right of a stockholder unless and until the date of issuance under the Plan of the shares that are subject to such Award. C. The purchase price of the shares of Common Stock as to which an Option is exercised shall be paid in cash or by check, except as otherwise hereinafter provided, at the time of exercise. In addition, in its sole discretion, the Committee may determine that it is an appropriate method of payment for grantees to pay for any shares subject to an option by (i) delivering certificates for unrestricted shares of Common Stock having a value equal to the Exercise Price of the Options being exercised, or (ii) delivering a properly executed exercise notice together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of proceeds for the sale of shares of Common Stock or margin credit extended on shares of Common Stock (including the Common Stock to be acquired pursuant to the exercise of Options) to pay the purchase price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The value of Company Common Stock surrendered in payment of the Exercise Price shall be its Fair Market Value, determined pursuant to Section 2.10, on the date of exercise. Upon receipt of a notice of exercise of a Stock Option and upon payment of the Exercise Price, the Company shall promptly deliver to the Participant a certificate or certificates for the shares of Common Stock purchased, without charge to him or her for issue or transfer tax. The Committee, in its sole discretion, may form time to time permit the method of exercising Options known as pyramiding or "cashless exercise" (that is, the automatic application of shares received upon the exercise of a portion of an Option to satisfy the exercise price for additional portions of the Option). D. A Participant may be required to pay to the Company, and the Company shall have the right to deduct from all amounts paid to a Participant (whether under the Plan or otherwise), any taxes required by law to be paid or withheld in respect of Awards hereunder to such Participant. The Committee may provide for additional cash payments to holders of Awards to defray or offset any tax arising from the grant, vesting exercise or payment of any Award or, at the election of the holder of the Award, the Committee may withhold shares or accept the transfer of shares to the Company, in such amounts as are equivalent to the Fair Market Value of the withholding obligations. E. If the Committee determines that such action is advisable, the Company may, or may cause the Operating Partnership to, assist any Participant in obtaining financing from the Company or from any bank or other third party, on such terms as are determined by the Committee, and in such amount as is required to accomplish the purposes of the Plan, including, but not limited to, permitting the exercise of an Award and/or paying any taxes in respect thereof to the extent permitted by law. Such assistance may take any form that the Committee deems appropriate, including, but not limited to, a direct loan from the Company or the Operating Partnership, a guarantee of the obligation by the Company or the Operating Partnership, or the maintenance by the Company or the Operating Partnership of deposits with such bank or third party. F. Awards, and any right that comes within the general definition of "derivative security" of Rule 16a-1(c) under the Exchange Act, shall not be assignable or transferable by a Participant except by will or the laws of descent and distribution (or pursuant to a beneficiary designation authorized under Section 8.7), and during the Award holder's lifetime, such Awards and rights shall be exercisable only by such holder or such holder's duly appointed guardian or legal representative. G. Each Participant may file and maintain with the Company a written designation of one or more persons as the beneficiary or beneficiaries who shall be entitled to receive the Award or related payment payable under the Plan upon the Participant's death. If no such designation is in effect at the time of a Participant's death, or if no designated beneficiary survives the Participant or if such designation conflicts with the law, the Participant's estate shall be entitled to receive the Award or related payment, if any, payable under the Plan upon the Participant's death. VIII. Governing Law The validity, construction, and effect of the Plan, any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Tennessee and applicable federal law. IX. Severability If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Participant or Award under any law deemed applicable by the Committee, such provision or Award shall be construed or deemed amended to conform to applicable laws, or if it cannot be construed or deemed amended, in the determination of the Committee, without materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Participant or Award and the remainder of the Plan and any such Award shall remain in full force and effect. X. Unfunded Plan The Plan is intended to constitute an "unfunded" plan. Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. To the extent that any person acquires a right to receive payments from the Company pursuant to an Award, such right (unless otherwise determined by the Committee) shall be no greater than the right of any unsecured general creditor of the Company. XI. Rule 16b-3 Compliance A. Unless a Participant could otherwise transfer an equity security, derivative security, or shares issued upon exercise of a derivative security granted under the Plan without incurring liability under Section 16(b) of the Exchange Act, (i) an equity security issued under the Plan, other than an equity security issued pursuant to the exercise of a derivative security granted under the Plan, shall be held for at least six months from the date of acquisition, and (ii) at least six months shall elapse from the date of acquisition of a derivative security to the date of disposition of the derivative security (other than upon exercise or conversion) or disposition of any underlying equity security issued pursuant to the exercise or conversion of such derivative security. B. It is the intent of the Company that this Plan comply in all respects with applicable provisions of Rule 16b-3 and Rule 16a-1(c)(3) under the Exchange Act in connection with any grant of Awards to or other transaction by a Participant who is subject to Section 16 of the Exchange Act (except for transactions exempted under alternative Exchange Act Rules or acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of this Plan or any Award Agreement does not comply with the requirements of Rule 16b-3 or Rule 16a- 1(c)(3) as then applicable to any such transaction, such provision will be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall avoid liability under Section 16(b). XII. Effective Date and Term of Plan A. The Plan is an amendment and restatement of the 1994 Restricted Stock and Stock Option Plan of the Company originally adopted by the Company's shareholder on January 26, 1994. The Plan became effective on February 4, 1994. B. The Plan shall remain in effect until January 31, 2004, unless sooner terminated by the Board. After this date, no further Awards may be granted but previously granted Awards shall remain outstanding in accordance with their applicable terms and conditions, as stated in the Award Agreement, and conditions of the Plan. XIII. Amendment and Termination of the Plan A. The Plan may be amended by the Board in any respect, without the consent of stockholders or Participants, except that any such amendment (although effective when made) shall be subject to the approval of the Company's stockholders within one year after such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted, and the Board may otherwise, in its discretion, determine to subject any other amendment to the Plan to stockholders for approval. In addition, no amendment may materially impair the rights of a Participant under any Award previously granted under the Plan without the consent of such Participant, unless required by law. B. The Plan may be terminated at any time by the Board. No further Awards may be made under the Plan after termination, but termination shall not affect the rights of any Participant under, or the authority of the Committee with respect to, any grants or awards made prior to termination. EX-10.9 11 EXHIBIT 10.9 Mid-America Apartment Communities, Inc. Mid-America Apartments, L.P. Revolving Credit Agreement (Amended and Restated) AmSouth Bank Administrative Agent March 16, 1998 Contents I. LOAN TERMS 1 1.1. The Loans 1 1.2. Borrowings 2 1.3. Commitments 2 1.4. Notes 2 1.5. Maximum amounts of Loans and Borrowings 2 1.6. Minimum Borrowing size 2 1.7. Swing Line Facility 2 1.8. Letters of Credit 4 1.9. Drafts under a Letter of Credit 5 1.10. Maturity of Loans 5 1.11. Fees 5 1.12. Interest Periods 7 1.13. Interest 7 1.14. Maximum Eurodollar Borrowings 8 1.15. Borrowers' termination of Borrowing Rights 8 1.16. Voluntary and Mandatory Prepayments 8 1.17. Payments generally 10 1.18. Funding losses 11 1.19. Pro-rata treatment 11 1.20. Whole dollars 12 II. BORROWINGS AND CONVERSION PROCEDURES 12 2.1. Borrowing Notices 12 2.2. Funding of Loans 12 2.3. Lender's failure to fund 13 2.4. Conversions 13 2.5. Defective notices 14 III. CONDITIONS 15 3.1. Conditions to effectiveness of this Agreement 15 3.2. Conditions to Borrowings 16 3.3. Conditions to Maintaining Loans 17 3.4. Conditions to Release of Mortgaged Property 18 3.5. Conditions to Addition of Property 19 IV. Representations and warranties 21 4.1. Corporate existence and power 21 4.2. Corporate, partnership and governmental authorization; non-contravention 22 4.3. Binding effect 22 4.4. Financial information 22 4.5. No material adverse change 22 4.6. Litigation 22 4.7. Taxes 23 4.8. Compliance with ERISA 23 4.9. Not an investment company or public utility holding company 23 4.10. Margin Regulations 23 4.11. Title to assets 23 4.12. Contracts or restrictions affecting Borrowers 24 4.13. No default 24 4.14. Patents and Trademarks 24 4.15. Hazardous Substances 24 4.16. Real Estate Investment Trust 24 4.17. Subsidiaries 24 V. Affirmative Covenants 25 5.1. Financial information 25 5.2. Maintenance of property;insurance 26 5.3. Compliance with laws 27 5.4. Books and records; payment of Taxes 27 5.5. Notice of Defaults 28 5.6. ERISA events 28 5.7. Use of proceeds 28 5.8. Maintenance of existence; merger; sale of assets 28 5.9. Right of inspection 29 5.10. Environmental laws 29 5.11. Notice of adverse change in assets 29 5.12. Indemnification 29 5.13. Qualification as a Real Estate Investment Investment Trust 31 5.14. Ownership of Subsidiaries 31 VI. Negative Covenants of Borrowers 31 6.1. Liens 31 6.2. Sale of Assets 32 6.3. Accounts Receivable from Related Persons 32 6.4. Loans to Officers and Employees 32 6.5. Trademarks and Trade Names 32 6.6. Net Operating Loss 33 6.7. Dividend Payout 33 6.8. Other Financial Covenants 33 6.9. Control 34 6.10. Subsidiary Ownership 34 6.11. Subsidiary Debt 34 VII. Default 34 7.1. Events of Default 34 7.2. Action on Default 39 7.3. Notice of Default 39 VIII. The Administrative Agent 40 8.1. Appointment and authorization 40 8.2. Other conduct 40 8.3. Scope of obligations 40 8.4. Consultation with experts 40 8.5. Liability of Administrative Agent 40 8.6. Indemnification 41 8.7. Successor Administrative Agent 41 8.8. Fees 42 IX. Change in circumstances 42 9.1. Eurocurrency Reserve Requirements 42 9.2. Increased cost or reduced return 42 9.3. LIBOR unavailable or inadequate 44 9.4. Illegal Loans 45 9.5. Termination of suspension 45 9.6. Taxes on payments 45 9.7. Change of Office 47 9.8. Replacement of Lender 47 X. Miscellaneous 48 10.1. Notices 48 10.2. No waivers; remedies cumulative; integration; survival 48 10.3. Expenses; documentary Taxes 49 10.4. Indemnification 49 10.5. Sharing of set-offs 50 10.6. Amendments and waivers 51 10.7. Successors and assigns 51 10.8. Borrowers' liability 54 10.9. No reliance on Margin Stock collateral 54 10.10. Credit decision 54 10.11. Alabama law 54 10.12. Waiver of jury trial 54 10.13. Venue of Actions 55 10.14. Execution 55 10.15. Survival 55 XI. Definitions and usages 55 11.1. Definitions 55 11.2. Accounting terms and determinations 67 11.3. Miscellaneous usages 67 List of Schedules 68 List of Exhibits 69 Revolving Credit Agreement This Revolving Credit Agreement is dated as of March 16, 1998 (this "Agreement") among Mid-America Apartment Communities, Inc. ("MAAC"), Mid-America Apartments, L.P. ("Mid-America"), the financial institutions listed on Schedule 1 as amended or supplemented from time to time (the "Lenders"), and AmSouth Bank, an Alabama banking corporation, as Administrative Agent for the Lenders, its successors and assigns (in such capacity, the "Administrative Agent"). This Agreement is executed in amendment and restatement of that certain Revolving Credit Agreement among the Borrowers, the Administrative Agent and certain lenders, dated November 20, 1997. The parties, intending to be legally bound, severally agree as follows: I. LOAN TERMS 1.1. The Loans Each Lender shall make loans ("Loans") to MAAC and Mid-America, jointly and severally (each a "Borrower" and together the "Borrowers"). The agreements of the Lenders to make Loans, are several and not joint. All Loans shall be made on the terms, and subject to the conditions, of this Agreement. The Borrowers may borrow, repay, prepay and reborrow under this Agreement from the Effective Date until the Termination Date of the Loans, in an aggregate principal amount not to exceed, at any one time outstanding, the lesser of: the sum of Two Hundred Million Dollars ($200,000,000.00), or the Borrowing Base reduced by (a) the amount of all outstanding Letters of Credit and (b) the amount of outstanding Advances. 1.2. Borrowings All Loans to the Borrowers that have Interest Periods that begin on the same day and end on the same day shall constitute a single borrowing ("Borrowing"). 1.3. Commitments A Lender's Commitment as of the date of this Agreement is the amount shown opposite its name on Schedule 1; a Lender's Commitment may be subsequently reduced pursuant to this Agreement or increased pursuant to a permitted assignment. As of the date of this Agreement, the Aggregate Commitment is $200,000,000.00. 1.4. Notes The Loans shall be evidenced by promissory notes of the Borrowers, payable to the order of each Lender, in the principal amount of their respective Proportionate Share of the Aggregate Commitment, and in the form substantially the same as the copy of the Note attached hereto as Exhibit A (the "Notes"). The Notes, in addition to evidencing new indebtedness, also amend, restate, renew and consolidate certain notes related to the Mortgaged Property, as explained on Exhibit I attached hereto. 1.5. Maximum amounts of Loans and Borrowings (a) No Lender shall make Loans in an aggregate unpaid principal amount that exceeds the Lender's Commitment. Each Borrowing shall consist of Loans made by the Lenders in proportion to their respective Commitments. (b) No Loan shall be made to the Borrowers if, immediately following the making of the Loan, the aggregate unpaid principal amount of all Loans to the Borrowers would exceed the lesser of the Aggregate Commitment or the Borrowing Base. 1.6. Minimum Borrowing size Each Borrowing shall be in the principal amount of $2,000,000 or a larger integral multiple of $500,000. 1.7. Swing Line Facility (a) The "Swing Line Facility" is being extended under, and as a component of, the Aggregate Commitment, and shall be advanced and readvanced by the Administrative Agent to the Borrowers in accordance with the provisions of this Agreement hereinafter set forth, and shall be evidenced by, and payable, together with interest thereon, in accordance with the provisions of, the Swing Line Facility Note. The Borrowers expressly acknowledge and agree that: 1. the Administrative Agent directly assumes the obligation to fund, and shall have the sole obligation to fund, 100% of each Advance of the Swing Line Facility which is made, or required to be made, in accordance with the provisions of this Agreement, and 2. the Borrowers shall not have the right under any fact or circumstance to look to any other party, including, without limitation, any other Lender, for the funding of all or any portion of the Swing Line Facility which is required to be made in accordance with the provisions of this Agreement if the Administrative Agent shall default in doing so, all risk of such default being assumed in all respects by the Borrowers. (b) Subject to satisfaction of the applicable general terms and conditions set forth in this Agreement, Advances under the Swing Line Facility will be available on any day the Administrative Agent is open for business and on the same day notice is given by the Borrowers to the Administrative Agent, provided that any such request by the Borrowers for an Advance under the Swing Line Facility is received by the Administrative Agent prior to 1:00 P.M., Birmingham time, on the date such Advance is requested. The outstanding principal balance under the Swing Line Facility may be prepaid, in whole or in part and at any time, without prior notice to the Administrative Agent and without payment of penalty or premium. Notice of prepayments under the Swing Line Facility must be received by the Administrative Agent prior to 1:00 P.M., Birmingham time, and payment received by the close of business on the day of notice for the Borrowers to receive credit for such prepayment that day. With respect to an Advance under the Swing Line Facility in excess of $750,000, the Borrowers shall submit to the Administrative Agent a detailed request for the Advance in the form attached hereto as Exhibit B. For an Advance of $750,000 or less under the Swing Line Facility, the Borrowers shall submit to the Administrative Agent a written memo requesting such Advance. Notwithstanding anything to the contrary contained herein, all controlled advances and payments automatically generated by the Administrative Agent's cash management system shall not require any of the above notices from the Borrowers. The Borrowers shall notify the Administrative Agent in writing of the responsible officer, who shall be either the chief financial officer, the chief executive officer, the chief operating officer, or the treasurer (the "Responsible Officer") authorized to request Advances under the Swing Line Facility on behalf of the Borrowers. (c) Upon request of the Administrative Agent, each of the other Lenders shall within 24 hours of such request fund their Proportionate Share in each Advance under the Swing Line; however, the failure of any such Lender to fund their Proportionate Share of each Advance under the Swing Line Facility shall not relieve the Administrative Agent from its obligation under subparagraph 1.7(a) above to fund the entire Advance. 1.8. Letters of Credit The Letter of Credit Facility is being extended under, and as a component of, the Aggregate Commitment. The Borrowers shall have the right, from time to time, to request the Administrative Agent to issue one or more unconditional and irrevocable letters of credit for its account or a Subsidiary's (each a "Letter of Credit"). The Borrowers, the Lenders and the Administrative Agent acknowledge and agree that the Existing Letters of Credit previously issued by the Administrative Agent for the account of MAAC shall each constitute a Letter of Credit hereunder for all purposes. Any request by the Borrowers for a Letter of Credit shall be subject to the terms and conditions of this paragraph hereinafter set forth: (a) Each request for the issuance of a Letter of Credit shall be in writing, shall state the requested date of issuance of the Letter(s) of Credit (which shall be at least five (5) Business Days after the request is received by the Administrative Agent), shall state the requested amount of the Letter(s) of Credit and the purposes for which the Letter(s) of Credit are requested, shall indicate both the account party and the beneficiary of the Letter(s) of Credit, and shall specify the terms of the Letter(s) of Credit (which terms shall be reasonably satisfactory to the Administrative Agent). (b) The aggregate amount of Letters of Credit outstanding at any one time shall not exceed $60,000,000. (c) At no time during the term of the Loans shall there be more than twenty (20) Letters of Credit in the aggregate outstanding, unless otherwise agreed to by Administrative Agent in its sole discretion. (d) No Letter of Credit shall have an expiration date beyond the Maturity Date. (e) The purpose of each Letter of Credit shall be to provide credit enhancement for tax exempt bond financing of the Borrowers or a Subsidiary or for such other purposes as may be acceptable to the Administrative Agent, which approval shall not be unreasonably withheld or delayed. (f) The Administrative Agent shall have the sole obligation to issue Letter(s) of Credit under this Agreement, and Borrower shall not have the right under any fact or circumstance to look to any other party, including, without limitation, any other Lender, for the issuance of the Letter(s) of Credit if the Administrative Agent defaults in doing so, all such risk of default being assumed by the Borrowers. (g) Upon written request of a Lender, the Administrative Agent shall provide a copy of the Letter(s) of Credit to such Lender. 1.9. Drafts under a Letter of Credit Any draw honored by the Administrative Agent under a Letter of Credit shall constitute an automatic Advance at the Base Rate and shall be evidenced by and payable, together with interest thereon, in accordance with the provisions of the Notes. Upon request of the Administrative Agent, each of the other Lenders shall, not later than 24 hours after such request, fund their respective Proportionate Share in each such Advance which is made as a result of a draw under a Letter of Credit. 1.10. Maturity of Loans Subject to Section 7.2, (Action on Default), and Section 1.15 (Borrowers' termination of Borrowing Rights), the unpaid principal amount of each Loan shall be due and payable on the Maturity Date. The Borrowing Rights of the Borrowers and the obligation of the Lenders to extend Loans shall permanently terminate on the Termination Date. 1.11. Fees (a) Letter of Credit Fees The annual fee for the issuance of a Letter of Credit shall be equal to one and one-quarter percent (1.25%) per annum multiplied by the face amount of such Letter of Credit; and any such fee shall be paid annually in advance for the entire period of time that such Letter of Credit is outstanding (the "Letter of Credit Fee"). One-eighth of one percent (.125%) of each Letter of Credit Fee shall be retained by the Administrative Agent for its sole account, and the remaining one and one-eighth percent (1.125%) shall be shared with the Lenders in accordance with their respective Proportionate Share. The Borrowers shall also pay to the Administrative Agent an administrative fee at the customary rate charged by the Administrative Agent for the issuance of letters of credit generally. (b) Commitment Fee The Borrowers have agreed to pay to the Lenders a commitment fee (the "Commitment Fee") pursuant to a separate letter agreement among the Administrative Agent and the Borrowers. Such payment is being made in consideration of the agreement of the Lenders to make funds available to the Borrowers under the terms and provisions hereof from the Effective Date until the Termination Date. The Borrowers agree that this commitment fee is fair and reasonable, considering the condition of the money market, the creditworthiness of the Borrowers and the interest rate to be paid for the Loan. (c) Facility Fee The Borrowers shall pay an annual fee, due on the closing of the Loans and on November 24, 1998 (the "Facility Fee"). Such payment shall be made in consideration of the Lenders' agreement to make funds available to the Borrowers under the terms and provisions hereof. The Facility Fee due on closing shall be payable pursuant to a separate letter agreement between the Administrative Agent and each Lender. The Facility Fee due on November 24, 1998, shall be payable to the Lenders in accordance with their respective Proportionate Share. (d) Collateral Fee The Borrowers shall pay to the Administrative Agent, for the sole benefit of the Administrative Agent, a fee of $3,500 for each Apartment Community submitted to the Administrative Agent for inclusion as a Mortgaged Property throughout the term of the Loans. (e) Other Fees The Borrowers shall pay the Administrative Agent such other fees as required by the Administrative Agent in a separate letter agreement between the Administrative Agent and the Borrowers. 1.12. Interest Periods Each Eurodollar Loan shall have an Interest Period of thirty (30) or sixty (60) days (the "Interest Period") as the Borrowers specify in the applicable Borrowing or Conversion Notice, except that: an Interest Period that would otherwise end on a day that is not a Business Day shall end on the following Business Day unless the following Business Day falls in another calendar month, in which case the Interest Period shall end on the preceding Business Day, and an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of the Interest Period) shall end on the last Business Day of a calendar month. 1.13. Interest For each Loan, the Borrowers may elect that such Loan accrue interest at either the Base Rate or the Eurodollar Rate. (a) Each Eurodollar Loan shall bear interest at the Eurodollar Rate on its unpaid principal amount from the first to the last day in its applicable Interest Period. Accrued interest shall be payable on Eurodollar Loans on the last day of the applicable Interest Period. (b) Each Base Rate Loan and each Loan evidenced by the Swing Line Facility Note shall bear interest at the Base Rate on its unpaid principal amount from the date such Loan is made until repaid. Accrued interest shall be payable on Base Rate Loans and Loans evidenced by the Swing Line Facility Note on the first day of each month. (c) The Borrowers shall pay on the Conversion Date accrued interest on any Loan converted prior to the last day of its Interest Period. (d) Overdue principal of or interest on a Loan shall bear interest, payable on demand, from the first day the principal or interest is overdue until paid (after as well as before judgment) at a rate per annum equal to the sum of 2% plus the applicable interest rate on the particular Loan for each day. (e) Upon the successful completion, reasonably satisfactory to all of the Lenders, of MAAC's issuance or sale of common or preferred stock that produces net proceeds of no less than $90,000,000, the interest rates available hereunder shall be modified as follows: 1. the Margin utilized in calculating the Eurodollar Rate shall equal one and one quarter percent (1.25%); and 2. the Base Rate shall equal the Prime Rate minus .75%. The Borrowers may submit to the Lenders a written request for such continuation of, or reduction in, the Margin and the Base Rate, and shall deliver to the Lenders such information, reports and opinions with such request that the Lenders deem desirable or necessary. (f) The Administrative Agent shall determine the interest rates for all Loans and shall promptly notify the Borrowers and the Lenders of such interest rates. Such determinations shall be conclusive in the absence of manifest error. 1.14. Maximum Eurodollar Borrowings Notwithstanding anything to the contrary contained herein, there shall not be more than nine (9) Eurodollar Borrowings outstanding at any given time. 1.15. Borrowers' termination of Borrowing Rights The Borrowers may, upon at least three Business Days' notice to the Administrative Agent, permanently terminate their Borrowing Rights. If the Borrowers so terminate their Borrowing Rights, the unpaid principal amount of all Loans to the Borrowers with all accrued interest, and all fees, and funding losses, and other amounts owing by the Borrowers under this Agreement, shall be payable on the effective date of the termination. Additionally, the Borrowers shall cause all outstanding Letters of Credit to be surrendered to the Administrative Agent on such date of termination. The Administrative Agent shall promptly notify the Lenders of such termination of the Borrowers' Borrowing Rights. 1.16. Voluntary and Mandatory Prepayments (a) The Borrowers may prepay on any Business Day the unpaid principal amount of the Loans in a Borrowing in whole or in a part that is $2,000,000 or a larger integral multiple of $500,000. (b) In the event the aggregate outstanding balance of the Loans shall at any time exceed the Borrowing Base, the Borrowers shall immediately make a principal payment which will reduce the outstanding aggregate principal balance of the Loans to an amount not exceeding the Borrowing Base. (c) (i) If a Development Project for which Advances have been made in accordance with the Borrowing Base has not become a Stabilized Property within one (1) year from the date Certificates of Occupancy have been issued for all buildings within the Development Project, the Advance Rate of such Development Project shall be reduced from 50% to 25%; (ii) if such Development Project has not become a Stabilized Property within 18 months of the date Certificates of Occupancy have been issued for all buildings within the Development Project, the Advance Rate shall be reduced to $0.00; and (iii) if Certificates of Occupancy for all buildings within the Development Project have not been issued within 24 months from the commencement of construction of such Development Project, the Advance Rate shall be reduced to $0.00; and then, in all such instances, a payment of principal shall immediately be due and payable in an amount sufficient to reduce the outstanding principal balance of the Loans to an amount not exceeding the Borrowing Base. Nothing in this subsection shall preclude the Borrowers from subsequently resubmitting a Development Project described in this subsection in accordance with Section 3.5 hereof. (d) A prepayment of principal must be accompanied by payment of accrued interest on the principal amount prepaid. Prepayments of Loans accruing interest at the Eurodollar Rate shall be subject to Section 1.18 (Funding losses). (e) In the event a Curative Measure is not substantially completed within ninety (90) days of the date the subject Mortgaged Property was added to the Borrowing Base, the Borrowers shall, within ten (10) days after notice from the Administrative Agent to Borrowers, make a prepayment of principal equal to the cost of such Curative Measure as set forth in the applicable Inspection Report, unless such Curative Measure is completed within such ten (10) day period. (f) If a Stabilized Property has been injured or damaged by fire or other casualty to the extent that twenty-five percent (25%) of the apartment units included in such Stabilized Property has been rendered uninhabitable, the Borrowing Base shall be immediately reduced, and the Loans repaid by the corresponding amount, in an amount equal to 60% of the Fair Market Value of such Stabilized Property immediately prior to such damage or injury; provided, however, that if the damaged Stabilized Property is insured in an amount sufficient to rebuild or restore such damage and if rental insurance is payable for the repair and reconstruction period, no reduction in the Borrowing Base will result hereunder. It is agreed that after such damaged Stabilized Property has been repaired to the Administrative Agent's satisfaction, the Borrowing Base shall be recalculated as of the date the Administrative Agent approved such repair, based on the then Fair Market Value. Prepayment Notices The Borrowers shall notify the Administrative Agent of a prepayment, specifying the date of the prepayment and the amount of the Borrowings to be prepaid, at least two (2) Business Days before the date of prepayment. Upon receipt of a notice of prepayment, the Administrative Agent shall promptly notify each Lender of its contents and of the Lender's Proportionate Share of the prepayment. 1.17. Payments generally (a) The Borrowers shall make each payment of principal of and interest on its Borrowings and of fees hereunder by 11:00 a.m. on the date due, in immediately available funds in Birmingham, Alabama, to the Administrative Agent at its Notice Address. The Administrative Agent shall promptly distribute to each Lender its Proportionate Share of each such payment. (b) If a payment of principal, interest or fees is due on a day that is not a Business Day, the date for the payment shall be extended to the following Business Day, except that if the following Business Day falls in another calendar month, the date for the payment of a Loan shall be the preceding Business Day. If the date for a payment of principal is so extended, or is extended by operation of law or otherwise, interest on the payment shall be payable for the extended time. (c) All interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. (d) Entries in records maintained by a Lender in accordance with its usual practice evidencing the Borrowers' indebtedness to the Lender under this Agreement and under the Notes, including the amounts of Loans, applicable Interest Periods and payments of principal and interest, shall be prima facie evidence of the existence and amounts of the obligations of the Borrowers to which the entries relate. A Lender's failure to maintain such records, or any error therein, shall not affect the Borrowers' obligations to repay the Loans in accordance with this Agreement. 1.18. Funding losses If - the Borrowers make a payment of principal of a Loan before the last day of the Interest Period for such Loan (including prepayment of Loans pursuant to Section 9.4 (Illegal Loans), or - the Borrowers fail to borrow or prepay or to convert a Loan after the Administrative Agent has notified any other Lender of the Borrowing, prepayment or Conversion, then the Borrowers shall reimburse each Lender on demand for any resulting loss or expense incurred by it, including any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after such payment or Conversion or failure to borrow, prepay or convert, provided that the Lender has delivered to the Borrowers a certificate reasonably detailing the amount of the loss or expense, which certificate shall be conclusive in the absence of manifest error. 1.19. Pro-rata treatment Except as otherwise expressly provided in this Agreement, or to the extent otherwise required due to a Lender's failure to fund, - each payment of a fee shall be allocated among the Lenders in their Proportionate Share for the relevant period, - each payment of principal of a Borrowing shall be allocated among the Lenders in their respective Proportionate Share of the unpaid principal amounts of their Loans included in the Borrowing, and - each payment of interest on a Borrowing shall be allocated among the Lenders in their respective Proportionate Share of the amounts of accrued and unpaid interest on their Loans included in the Borrowing. 1.20. Whole dollars In computing the amounts of the Lenders' Loans to be included in a Borrowing, the Administrative Agent may round each Lender's Loan to the next higher or lower whole dollar amount. II. BORROWINGS AND CONVERSION PROCEDURES 2.1. Borrowing Notices (a) The Borrowers shall notify the Administrative Agent (a "Borrowing Notice") by 1:00 p.m., Birmingham time, on the third Business Day immediately preceding a Eurodollar Borrowing and by 1:00 p.m., Birmingham time, on the Business Day immediately preceding a Base Rate Borrowing. (b) A Borrowing Notice shall be in substantially the form of Exhibit C and shall specify: 1. the aggregate principal amount of the Borrowing, 2. whether the Borrowing is a Eurodollar Loan or a Base Rate Loan, 3. the Interest Period for a Eurodollar Borrowing (which shall not extend beyond the Maturity Date), 4. the Borrowers' account at the Administrative Agent to which the proceeds of the Borrowing are to be deposited, and 5. whether the Borrowing is to be utilized for a particular Development Project subject to a Mortgage. 2.2. Funding of Loans The Administrative Agent shall promptly notify each Lender of the contents of each Borrowing Notice and of the principal amount of the Lender's Loan to be included in the Borrowing. Not later than 12 p.m. on the day of a Borrowing, each Lender shall make available the full amount of its Loan to be included in the Borrowing, in immediately available funds in Birmingham, to the Administrative Agent at its Notice Address. Unless the Administrative Agent determines that an applicable condition specified in Section 3 has not been satisfied, the Administrative Agent shall make the funds received from the Lenders pursuant to this Section 2.2 available to the Borrowers at the Administrative Agent's Notice Address by 2 p.m. on such day for a Borrowing. 2.3. Lender's failure to fund Unless a Lender notifies the Administrative Agent before the date of a Borrowing (whether for a Eurodollar Borrowing, a draw under a Letter of Credit or any other Borrowing available hereunder) that the Lender will not make available to the Administrative Agent the full amount of its Loan to be included in the Borrowing, the Administrative Agent may assume that the Lender's Loan will be made available to the Administrative Agent on the day of the Borrowing and may, in reliance on that assumption, make the full amount of the Loan available to the Borrowers. If the Administrative Agent makes the full amount of a Lender's Loan available to the Borrowers, and the Lender does not make available to the Administrative Agent some or all of the Loan (the "Unfunded Amount") by the date of the Borrowing, then the Lender shall pay the Administrative Agent on demand interest at the Federal Funds Rate on the Unfunded Amount from the date of the Borrowing until the Lender makes the Unfunded Amount available to the Administrative Agent or the Borrowers repay the Loan. If a Lender does not make the full amount of its Loan included in a Borrowing available to the Administrative Agent by the third Business Day after the date of the Borrowing, the Borrowers shall, promptly on the Administrative Agent's demand, repay the full amount of such Loan to the Administrative Agent, together with accrued interest at the interest rate for the Loans comprising the Borrowing. Nothing in this Section 2.3 shall relieve a Lender of the obligation to make the full amount of its Loans available to the Administrative Agent. 2.4. Conversions The Borrowers may at any time at the end of an Interest Period, if they are not in Default, convert the Loans bearing interest at the Eurodollar Rate into new Loans for an additional Interest Period (a "Conversion"). A Conversion shall convert each Loan in a Borrowing in the same proportion. Since each Loan in a Borrowing shall be converted in the same proportions, Conversion shall refer equally to Conversion of Loans and Conversion of Borrowings. A Borrower may initiate a Conversion by notifying the Administrative Agent (a "Conversion Notice") not later than 1:00 p.m. on the third Business Day before the Conversion Date. The Administrative Agent shall promptly notify each Lender of the contents of each Conversion Notice and of the Lender's Loans that will result from the Conversion. A Conversion Notice shall be in substantially the form of Exhibit D and shall: - state the Conversion Date, - identify each then outstanding Borrowing that is to be converted, - state the aggregate unpaid principal amount of the Loans in such outstanding Borrowings, and - state the principal amount and Interest Period (which shall not extend beyond the Maturity Date) of each Borrowing into which such outstanding Borrowings are to be converted. Each Borrowing resulting from a Conversion must, as to amount and Interest Period, conform to the requirements for a Borrowing comprised of Loans made on such date (as if the Loans to be converted had been prepaid, and the new Loans made, on the Conversion Date), and a Conversion Notice shall be effective solely as to the resulting Borrowings that do so conform. If a Conversion Notice purports to or is effective to convert only part of the Borrowings specified in the Conversion Notice, the remaining parts of such Borrowings shall on the Conversion date automatically be converted into a single Base Rate Borrowing. The Borrowers shall be liable to the Lenders for any funding losses in accordance with Section 1.18 on any portion of a Borrowing not converted. A Conversion of a Loan must satisfy the conditions in Section 3.2 for the making of a Loan. If part or all of a Loan is not otherwise converted by the last day of its Interest Period, it shall automatically be converted on the last day of its Interest Period into a Base Rate Loan. 2.5. Defective notices The Administrative Agent shall promptly notify a Lender or the Borrowers if the Administrative Agent believes that a notice or other document given to the Administrative Agent by a party under Section 1 or this Section 2 fails to conform to the requirements of such Section. III. CONDITIONS 3.1. Conditions to effectiveness of this Agreement This Agreement shall become effective when the Administrative Agent has received the following documents: -for each party to the Agreement, an original or telecopied counterpart of this Agreement signed by all parties; -an original Note executed to the order of each Lender, in the principal amount of such Lender's Commitment and evidencing such Lender's Loans; - the original Mortgages upon the Initial Properties identified in Schedule 2; - a Subsidiary Guaranty executed by each Subsidiary executing a Mortgage on the Initial Properties; - title insurance policies, appraisals, evidence of appropriate zoning, environmental reports, surveys, evidence of insurance and such other information as the Administrative Agent may request for each and all of the Initial Properties; - opinions of counsel satisfactory to the Administrative Agent to each of the Borrowers, substantially in the form of Exhibit E; - a certificate of a senior officer of each Borrower that (i) no Default has occurred and is continuing and (ii) the representations and warranties of the Borrowers contained in this Agreement are true on the date of this Agreement, substantially in the form of Exhibit J; and - such other documents as the Administrative Agent reasonably requests and deems satisfactory relating to each Borrower's and Subsidiary's existence, the corporate authority for and validity of this Agreement, the Mortgages, each Subsidiary Guaranty and any other relevant matter. The Administrative Agent shall promptly notify the Borrowers and the Lenders when this Agreement becomes effective, and such notice shall be conclusive and binding on all parties. 3.2. Conditions to Borrowings The obligation of a Lender to make a Loan to the Borrowers as part of a Borrowing is subject to the satisfaction of the following conditions: - this Agreement is effective; - the Administrative Agent receives a Borrowing Notice conforming to the requirements of this Agreement; - immediately after the Borrowing, the aggregate unpaid principal amount of the Loans will not exceed the lesser of the Aggregate Commitment or the Borrowing Base; - each Borrower represents that no material adverse change in its financial condition or results of operations has occurred; - immediately before and after the Borrowing, no Default will have occurred and be continuing; - the representations and warranties of the Borrowers contained in this Agreement are true on and as of the date of the Borrowing with the same effect as if made on and as of such date (except to the extent such representations and warranties expressly relate to an earlier date); - the Administrative Agent receives, with the Borrowing Notice, an update to the title policy for each Borrowing on a Development Project; - no mechanic's lien claim shall have been filed or asserted against any Mortgaged Property, which has not been "bonded off" such Mortgaged Property in accordance with applicable law; - all licenses, permits and approvals of governmental authorities required for the operation of the respective Mortgaged Properties shall have been obtained and are in full force and effect; - each request for a Borrowing for a Development Project shall be subject to the approval of the Administrative Agent and the Administrative Agent's construction consultant, which approval shall not be unreasonably withheld or delayed; - there shall have occurred no material violation of any applicable laws, ordinances, rules or regulations; it being understood that a single violation shall be deemed material if it involves by way of fees, fines, costs, expenses, curative work or other potential loss or expense to the Borrowers exceeding the sum of $100,000.00 or $500,000 in the aggregate for multiple violations; - there shall be no action, suits or proceedings pending, or to the Borrowers' knowledge, threatened against or affecting either Borrower, any Subsidiary or any Mortgaged Property, at law or in equity, or before any governmental agencies, which, if adversely determined, would substantially impair the ability of the Borrowers to pay their obligations as set forth herein or adversely affect the priority or security of a Mortgage; and - there shall have occurred no material adverse change in the financial condition of either Borrower or any Mortgaged Property. Each Borrowing shall constitute a representation and warranty by the Borrowers that, on the date of the Borrowing, the conditions set forth in this Section 3.2 are satisfied. 3.3. Conditions to Maintaining Loans (a) The Administrative Agent shall have the right, at any time and from time to time, to require the Borrowers to furnish to the Administrative Agent current financial information, Inspection Reports, and/or environmental studies of any one or more of the Mortgaged Properties if, in the unrestricted discretion of the Administrative Agent, such Mortgaged Properties shall have declined in value in any material amount or may be in violation of any applicable Environmental Laws. The Borrowers shall have the right to require the Administrative Agent to commission updated appraisals, and the Administrative Agent shall also have the right to require updated appraisals if required by law or banking regulations. Any such appraisals and environmental studies must be in form, content and conclusion satisfactory to the Administrative Agent, subject to the Administrative Agent's approval in all respects, and must be made by a qualified, licensed professional selected and commissioned by the Administrative Agent. If any such current financial information, updated appraisal or environmental study should reflect a decline in value, the Borrowing Base shall be reduced accordingly; and, if the then outstanding Loans should exceed the reduced Borrowing Base, the Borrowers shall be obligated immediately to reduce the Loans to an amount not exceeding the applicable reduced Borrowing Base. If any such appraisal or current financial information should reflect an increase in value, the applicable Borrowing Base shall be increased accordingly to the extent appropriate. (b) For each Development Project, the Borrower shall provide to the Administrative Agent a quarterly statement of occupancy, no later than the 15th day after the end of each quarter for the immediately preceding calendar quarter. (c) If any environmental study should reflect the necessity or desirability for action to be taken to prevent or cure the violation or prospective violation of applicable Environmental Laws, the Borrowers shall, at their sole cost and expense, immediately undertake such action and diligently prosecute same to conclusion. (d) Although the Administrative Agent shall have the right to require as many appraisals and environmental surveys as it shall elect with respect to each Mortgaged Property, the Borrowers shall be obligated to pay for only one (1) appraisal and one (1) environmental survey, with respect to each Mortgaged Property during any one (1) consecutive twelve (12) month period. Any appraisals requested by the Borrowers pursuant to Section 3.3(a) shall be at Borrowers' sole expense and shall be excluded from consideration in determining whether the Borrowers are obligated to pay the costs of additional appraisals required by the Administrative Agent. Any initial appraisals and environmental studies furnished to the Administrative Agent in connection with each Mortgaged Property shall also be excluded from consideration in determining whether Borrowers are obligated to pay the cost of additional appraisals or environmental studies for any such Property. 3.4. Conditions to Release of Mortgaged Property (a) The privilege is given and reserved so that the Borrowers may obtain the release of a Mortgaged Property from the lien of a Mortgage upon payment to the Administrative Agent, for application upon the Loan, a principal amount equal to the amount of the applicable Advance Rate for such Mortgaged Property, together with all interest accrued upon such amount, and all out-of-pocket expenses and advances then due and owing to the Administrative Agent in connection with the Loans. (b) The release privilege herein granted is conditioned upon (1) there being no Default existing (a) at the time any such release is requested, or (b) on the date the release is to be delivered, (2) the release not causing a Default, and (3) continued compliance with the Borrowing Base upon the release of the subject Mortgaged Property. (c) Any Apartment Community remaining subject to a Mortgage shall not be dependent on the Mortgaged Property being released for access, utilities, amenities or any other matter. (d) Any such requested release shall be made at the sole cost and expense of the Borrowers. 3.5. Conditions to Addition of Property The Borrowers shall be entitled to offer Apartment Communities which, if approved by Two-Thirds of the Lenders, shall, upon satisfaction of the following conditions, then be deemed to constitute Mortgaged Properties and available for use in determining the Borrowing Base: (a) For Apartment Communities to be added to the Borrowing Base as either a Stabilized Property or a Development Project, the Borrower shall deliver to the Administrative Agent the following, all in form and content satisfactory to the Administrative Agent: 1. Evidence that the entity holding title to the Apartment Community is either a Borrower or a Subsidiary; 2. an environmental report or reports evidencing that the Apartment Community is in material compliance with all Environmental Laws, using the standard generally applied by sophisticated commercial lenders experienced in real estate financing; 3. evidence of hazard and liability insurance as required herein; 4. evidence of compliance with current zoning regulations; 5. a current appraisal meeting the guidelines of the Federal Institutions Reform, Recovery and Enforcement Act; 6. a Mortgage granting to the Administrative Agent, for the benefit of the Lenders, a first lien on the subject Apartment Community or Development Project, together with a Subsidiary Guaranty if the owner of the applicable Apartment Community or Development Project is not a Borrower; 7. an opinion of local counsel, opining that the owner of the Apartment Community or Development Project is qualified to do business in the state where the Apartment Community or Development Project is located and that the Mortgage is a valid and binding obligation of the owner, enforceable in accordance with its terms; 8. a title insurance policy in the amount of the Advance Rate of a Stabilized Property and in the amount of sixty percent (60%) of the Project Budget for a Development Project, issued by a title insurance company acceptable to the Administrative Agent, insuring the priority lien of the Mortgage, subject only to exceptions approved by Two-Thirds of the Lenders; 9. a current survey, certified to the Administrative Agent, which requirement shall be waived if the insuring title insurance company deletes the standard survey exception; 10. an Inspection Report; 11. for Florida Apartment Communities only, evidence that the Fair Market Value of the proposed Apartment Community, when added to the Fair Market Value of all the Florida Mortgaged Properties, does not exceed $110,000,000 in the aggregate; and 12. additionally, for Development Projects only: i) the Project Budget; ii) plans and specifications; iii) copies of all design and construction contracts; iv) copies of all building permits; v) a written statement from the Borrower that construction has either commenced or will commence within thirty (30) days; vi) if construction has commenced, evidence satisfactory to the Administrative Agent of the Work Completed; and vii) evidence of availability of all necessary utilities. (b) For a Development Project to be converted to a Stabilized Property, the Borrower shall deliver to the Administrative Agent: 1. All of the items described in (a) above to the extent not already submitted, and, if previously submitted, up-dated if deemed necessary by the Administrative Agent; 2. A copy of the Certificate of Occupancy for all buildings included in the Development Project; 3. Evidence that the Development Project has achieved and maintained an occupancy rate of at least 80% for at least the two immediately preceding calendar months; 4. A current, as-built survey, showing all improvements, and such other detail as shall be required by the Administrative Agent; and 5. A certificate of the architect, certifying that the Development Project has been completed in substantial accordance with the plans and specifications which had previously been delivered to, and approved by, the Administrative Agent. IV. Representations and warranties Each Borrower represents and warrants that: 4.1. Corporate existence and power Mid-America is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is in good standing and duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary, including, without limitation, every jurisdiction in which an Apartment Community is offered to the Lenders as a Mortgaged Property. MAAC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Tennessee; it has the power and authority to own its properties and assets and is in good standing and duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary, including, without limitation, every jurisdiction in which an Apartment Community is offered to the Lenders as a Mortgaged Property. 4.2. Corporate, partnership and governmental authorization; non contravention The execution, delivery and performance by the Borrower of this Agreement are within the Borrower's corporate or partnership, as the case may be, powers, have been duly authorized by all necessary corporate or partnership, as the case may be, action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws or partnership agreement of the Borrower or of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. 4.3. Binding effect This Agreement is a valid and binding agreement of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 4.4. Financial information The consolidated balance sheet of MAAC prepared as of the 30th day of September, 1997, together with any explanatory notes therein referred to and attached thereto, is correct and complete and fairly presents the financial condition of the Borrowers as of the date of said balance sheet. A copy of such balance sheet has been delivered to each Lender. 4.5. No material adverse change Since September 30, 1997, there has been no material adverse change in the financial position or results of operations of the Borrowers, considered as a whole. 4.6. Litigation There is no action, suit or proceeding pending against, or, to the knowledge of the Borrower, threatened against or affecting, the Borrower before any court or arbitrator or any governmental body, agency or official in which there is a reasonable probability of an adverse decision that would materially adversely affect the business, financial position or results of operations of the Borrower or that in any manner draws into question the validity or enforceability of this Agreement. 4.7. Taxes The Borrower has filed all United States federal income tax returns and all other material tax returns that are required to be filed by it and has paid all Taxes then due pursuant to such returns or pursuant to any assessment received by the Borrower, except for Taxes contested in good faith by appropriate proceedings and as to which appropriate reserves in accordance with generally accepted accounting principles have been established. The charges, accruals and reserves on the books of the Borrower for Taxes are, in the Borrower's opinion, adequate. 4.8. Compliance with ERISA Each member of the Controlled Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code for each Pension Plan and is in compliance in all material respects with ERISA and the Code, and has not incurred any liability to the PBGC or a Pension Plan under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. 4.9. Not an investment company or public utility holding company The Borrower is not an 'investment company' within the meaning of the Investment Company Act of 1940 or a 'holding company' within the meaning of the Public Utility Holding Company Act of 1935. 4.10. Margin regulations At no time will Margin Stock comprise more than 5% of the value of the assets of a Borrower. 4.11. Title to assets Each Borrower has good and marketable title to all its properties and assets reflected on the consolidated balance sheet referred to herein, except for (a) such assets shown on said balance sheet that have been disposed of since said date as no longer used or useful in the conduct of business, (b) inventory sold in the ordinary course of business and thereafter accounted for as accounts receivable or cash, (c) accounts receivable collected and property accounted for, and (d) items which have been amortized in accordance with GAAP applied on a consistent basis; and all such properties and assets are free and clear of Liens except as otherwise expressly permitted by the provisions hereof. 4.12. Contracts or restrictions affecting Borrowers Neither Borrower is a party to, nor subject to, any agreement or instrument, including, without limitation, any partnership agreement, partnership restrictions, voting trust or shareholders' agreement, materially and adversely affecting its business, Apartment Communities, or other assets, operations or condition (financial or otherwise). 4.13. No default Neither Borrower is in default in the performance, observance or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument to which it is a party, which default (if not cured) would materially and adversely and substantially affect the financial condition, property or operations of such Borrower. 4.14. Patents and Trademarks Each Borrower possesses all necessary patents, service marks, trademarks, trade names, copyrights, and licenses necessary to the conduct of its business. 4.15. Hazardous Substances To the best of the Borrower's knowledge, (a) except strictly in compliance with all applicable Environmental Laws, no Hazardous Substances are located upon or have been stored, processed or disposed of on or released or discharged (including ground water contamination) from any Apartment Community owned or leased by either Borrower, and (b) no aboveground or underground storage tanks exist on any of the Apartment Communities. No private or governmental lien or judicial or administrative notice or action related to Hazardous Substances or other environmental matters has been filed against any Apartment Community. 4.16. Real Estate Investment Trust MAAC is qualified under the Code as a real estate investment trust. 4.17. Subsidiaries The Subsidiaries granting Mortgages on the Initial Properties are correctly identified on Schedule 4 attached hereto, and all are 100% owned, directly or indirectly, by either or both of the Borrowers. V. Affirmative Covenants Each Borrower agrees that: 5.1. Financial information (a) The Borrower shall deliver to the Administrative Agent for distribution to each Lender: As soon as available, and in any event within one hundred five (105) days after the end of each fiscal year of MAAC, a consolidated unqualified audit as of the close of such fiscal year of MAAC, together with a consolidated unqualified audit report and opinion of an independent certified public accountant acceptable to the Administrative Agent, prepared in accordance with GAAP, showing the financial condition of MAAC as of the close of such year, which audit shall include, inter alia, consolidated financial results of both Borrowers and all Subsidiaries of each of them; and the results of operations during such year; and within fifty (50) days after the end of each fiscal quarter, consolidated financial statements similar to those mentioned above, not audited but certified by the Certifying Officer, such balance sheets to be as of the end of such fiscal quarter, and such statements of income and surplus to be for the period from the beginning of the fiscal year to the end of such fiscal quarter, in each case subject only to audit and year end adjustment. The certificate of the Certifying Officer shall state that: 1. the attached financial statement, together with any explanatory notes referred to and attached thereto, is correct and complete and fairly represents the financial condition of MAAC as of the date of the financial statement, and the results of its operations for the period ending on the date reflected in said financial statement, 2. that such financial statement has been prepared in accordance with GAAP applied on a consistent basis maintained throughout the period involved, and 3. to the best of such Certifying Officer's knowledge, the Borrowers are not in Default under any of the terms and provisions of this Agreement, or, if the Borrowers are in Default, identifying with particularity each such Default; (b) Contemporaneously with the distribution thereof to the Borrower's shareholders or the filing thereof with the Securities and Exchange Commission, copies of all statements, notices and reports, specifically including reports on SEC Forms 10-K and 10Q; (c) In no event later than the 22nd day of each calendar quarter, but as of the last day of the immediately preceding calendar quarter, a Borrowing Base Certificate in the form attached hereto as Exhibit F together with a compliance certificate in substantially the form attached hereto as Exhibit J; and (d) promptly, such other financial information as may be reasonably requested by the Administrative Agent or a Lender. 5.2. Maintenance of property; insurance (a) The Borrower shall keep all its property useful and necessary in its business and all the Mortgaged Property, whether owned by a Borrower or a Subsidiary, in good working order and condition, ordinary wear and tear excepted. (b) The Borrower at all times shall maintain (or cause to be maintained) with respect to each Mortgaged Property in some company or companies (having a Best's rating of A:VIII or better, except for liability insurance maintained with respect to Properties located in Texas, which shall be maintained with a company or companies having a Best's rating of at least A-:VII) approved by the Administrative Agent: - Comprehensive public liability insurance covering claims for bodily injury, death, and property damage, with minimum limits satisfactory to the Administrative Agent, but in any event not less than those amounts customarily maintained by companies in the same or substantially similar business; - Business interruption insurance and/or loss of rents insurance in a minimum amount specified by the Administrative Agent for each Mortgaged Property, and in any such event covering loss of rents for a minimum period of one (1) year; - Hazard insurance insuring each Mortgaged Property against loss by fire (with extended coverage) and against such other hazards and perils (including but not limited to loss by earthquake, windstorm, hail, flood, explosion, riot, aircraft, smoke, vandalism, malicious mischief and vehicle damage) as the Administrative Agent, in its sole discretion, shall from time to time require, all such insurance to be issued in such form, with such deductible provision, and for such amount as shall be satisfactory to the Administrative Agent; and - Such other insurance as the Administrative Agent may, from time to time, reasonably require by notice in writing to the Borrowers. (c) The Borrower shall not, nor permit any other Person to, cancel, terminate, or materially amend any of the insurance policies required by this Section 5 without giving at least thirty (30) days' prior written notice to the Administrative Agent. The Borrower will deliver (or cause to be delivered) to the Administrative Agent original or certified copies of the insurance policies, or satisfactory certificates of insurance, and, as often as the Administrative Agent may reasonably request, a report of a reputable insurance broker with respect to such insurance. At the option of the Borrower, the Borrower may maintain the insurance coverages required by this Section 5, pursuant to so-called "blanket insurance policies", in which event the Borrower shall, from time to time, upon the Administrative Agent's request, furnish to the Administrative Agent certificates from the respective insurance companies (or their authorized agents) setting forth the types and amounts of insurance being maintained, any applicable deductible provisions, and such other information as the Administrative Agent may require (including, without limitation, the effective dates of any such insurance), together with copies of all such blanket insurance policies. 5.3. Compliance with laws The Borrower shall, and shall cause each Subsidiary to, comply in all material respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities, except where the necessity of compliance is contested in good faith by appropriate proceedings. 5.4. Books and records; payment of Taxes The Borrower shall keep proper books and records in which full and correct entries are made of all dealings and transactions in relation to its business and activities. While a Default is continuing, representatives of any Lender may inspect the Borrower's relevant books and records at any reasonable time. The Borrower shall pay and discharge, at or before maturity, all their respective material Tax liabilities, except for liabilities contested in good faith by appropriate proceedings and as to which appropriate reserves in accordance with generally accepted accounting principles have been established. 5.5. Notice of Defaults The Borrower shall, within five Business Days of a senior officer of the Borrower obtaining knowledge of a continuing Default, deliver to the Administrative Agent a certificate of the Certifying Officer setting forth the details of the Default and the action the Borrower is taking or proposes to take with respect to the Default. 5.6. ERISA events If a member of the Controlled Group - gives or is required to give notice to the PBGC of a 'reportable event' or knows that the plan administrator of a Pension Plan has given or is required to give notice of such reportable event, - receives notice of complete or partial Withdrawal Liability under Title IV of ERISA, - receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer a Pension Plan, or - knows that a Pension Plan is terminated or in reorganization, then the Borrower shall within five Business Days deliver a copy of the notice to the Administrative Agent. 5.7. Use of proceeds The Borrower shall use Loan proceeds only for its general corporate purposes. The Borrower shall not use any Loan proceeds for any purpose that violates Regulations G, T, U or X of the Federal Reserve Board. 5.8. Maintenance of existence; merger; sale of assets The Borrower shall keep in full force and effect its corporate or partnership existence, as the case may be, and its rights, privileges and franchises necessary or desirable in the normal conduct of business, provided that a Subsidiary of a Borrower may merge or consolidate with or into the Borrower (but only if the Borrower is the surviving entity) or a Subsidiary of the Borrower. A Borrower shall not (i) consolidate or merge with or into another Person unless the Borrower is the surviving entity and no Default by the Borrower exists immediately thereafter, or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person, except for the distribution of ordinary dividends to shareholders and distributions to partners. As used herein "substantially all" shall mean more than thirty percent (30%) of the total assets. 5.9. Right of inspection The Borrower shall permit any Person designated by the Administrative Agent to visit and inspect any of the properties, corporate books and financial reports of each Borrower and all Subsidiaries and to discuss its affairs, finances and accounts with its principal officers, at all such reasonable times during normal business hours and as often as the Administrative Agent may reasonably request. 5.10. Environmental laws The Borrower shall maintain at all times all Apartment Communities in compliance with all Environmental Laws, and immediately notify the Administrative Agent of any notice, action, lien or similar action alleging either the location of any Hazardous Substances or the violation of any Environmental Laws or any release of Hazardous Substances with respect to any Apartment Communities or operations. 5.11. Notice of adverse change in assets At the time of either Borrower's first knowledge or notice, such Borrower shall immediately notify the Administrative Agent of any information that may adversely affect in any material manner the assets of either Borrower, including, but not limited to, the value or marketability of any Mortgaged Properties. 5.12. Indemnification (a) General. The Borrower shall defend, indemnify and hold the Administrative Agent and the other Lenders harmless from and against any and all loss, costs, damage or expense, of every kind and nature, including, without limitation, reasonable attorneys' fees and costs, which the Administrative Agent and the other Lenders could or might incur by reason of any violation of any Environmental Laws by either Borrower, any Subsidiary or by any predecessors or successors to title to any Mortgaged Property. The indemnification granted herein shall run only to the benefit of the Administrative Agent and the Lenders and shall not give any rights of indemnification to any successors in title. Notwithstanding the foregoing, the Borrowers shall have no obligation to indemnify the Administrative Agent and the other Lenders for liability resulting solely from the gross negligence or willful misconduct of the Administrative Agent, or any of the other Lenders, as determined in a final non-appealable order by a court of competent jurisdiction. (b) Letter of Credit. The Borrowers hereby agree to protect, indemnify, pay and save the Administrative Agent and the Lenders harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees and disbursements) which the Administrative Agent and/or the Lenders may incur or be subject to as a result of (i) the issuance of the Letters of Credit, other than to the extent of the bad faith, gross negligence or wilful misconduct of the Administrative Agent and/or the Lenders or (ii) the failure of the Administrative Agent to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (collectively, "Governmental Acts"), other than to the extent of the bad faith, gross negligence or wilful misconduct of the Administrative Agent. As between the Borrowers and the Administrative Agent and the Lenders, the Borrowers assume all risks of the acts and omissions of any beneficiary with respect to its use, or misuse of, the Letters of Credit issued by the Administrative Agent. In furtherance and not in limitation of the foregoing, the Administrative Agent and the Lenders shall not be responsible (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or insufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of any such Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit, other than as a result of the bad faith, gross negligence or wilful misconduct of the Administrative Agent; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any message, by mail, cable, telegraph, telex, facsimile transmission, or otherwise, unless the result of the bad faith, gross negligence or wilful misconduct of the Administrative Agent; (v) for errors in interpretation of any technical terms, unless the result of the bad faith, gross negligence or wilful misconduct of the Administrative Agent; (vi) for any loss or delay in the transmission or otherwise of any documents required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) for the misapplication by the beneficiary of any such Letter of Credit of the proceeds of such Letter of Credit; and (viii) for any consequence arising from causes beyond the control of the Administrative Agent, including any Government Acts, in each case other than to the extent of the bad faith, gross negligence or wilful misconduct of the Administrative Agent. None of the above shall affect, impair or prevent the vesting of the Administrative Agent's rights and powers hereunder. In furtherance and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Administrative Agent under or in connection with the Letters of Credit issued by it or the related certificates, if taken or omitted in good faith, shall not put the Administrative Agent under any resulting liability to the Borrowers provided that, notwithstanding anything in the foregoing to the contrary, the Administrative Agent will be liable to the Borrowers for any damages suffered by the Borrowers as a result of the Administrative Agent's grossly negligent or wilful failure to pay under any Letter of Credit after the presentation to it of a sight draft and certificates strictly in compliance with the terms and conditions of the Letter of Credit. 5.13. Qualification as a Real Estate Investment Trust MAAC shall at all times remain (a) qualified under the Code as a real estate investment trust and (b) the general partner of Mid-America. 5.14. Ownership of Subsidiaries MAAC or Mid-America shall at all times remain a direct or indirect owner of 100% of the ownership interest of each Subsidiary that is the owner of a Mortgaged Property. VI. Negative Covenants of Borrowers Each Borrower covenants and agrees that, at all times from and after the Effective Date, unless Two-Thirds of Lenders shall otherwise consent in writing, it will not, nor shall it permit a Subsidiary that is the owner of a Mortgaged Property to, either directly or indirectly: 6.1. Liens Incur, create, assume or suffer to exist any mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of the Mortgaged Properties other than: (a) Deposits under workmen's compensation, unemployment insurance and Social Security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases or to secure statutory obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; (b) Liens imposed by law (other than tax liens), such as carriers', warehousemen's or mechanics' liens, incurred in good faith in the ordinary course of business and in an amount of less than $100,000; (c) Liens in favor of the Lenders; (d) Purchase money security interests arising in the ordinary course of the apartment leasing business; and (e) Liens for real property and personal property taxes, but not yet delinquent. 6.2. Sale of Assets Sell, lease, transfer or dispose (other than in the normal course of business) of all or a substantial part of its assets. 6.3. Accounts Receivable from Related Persons Permit or allow the aggregate of accounts receivable and other loans and indebtedness owed by Related Persons to the Borrowers to exceed the sum of Five Hundred Thousand Dollars ($500,000.00) in the aggregate as to both Borrowers. 6.4. Loans to Officers and Employees Permit or allow loans to directors, officers, partners, shareholders and employees of both Borrowers to exceed, in the aggregate, the sum of One Million Dollars ($1,000,000.00). 6.5. Trademarks and Trade Names Sell, transfer, convey, grant any security interest in, or otherwise encumber any existing or hereafter acquired trademarks, service marks or trade names owned by the Borrower. 6.6. Net Operating Loss Permit or allow a Net Operating Loss of more than One Million Dollars ($1,000,000.00) in any quarterly period or in any amount for any two (2) consecutive quarterly periods in any one (1) fiscal year. 6.7. Dividend Payout Make a dividend payment (including both common stock dividends and preferred stock dividends) which is greater than ninety percent (90%) of Funds from Operations or that would otherwise violate the United States federal tax laws governing the qualifications of real estate investment trusts. As used herein, "Funds from Operations" shall mean consolidated net income of MAAC (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring or sales of property, plus depreciation of real property. Upon written pre-approval of the Administrative Agent, exceptions may be made where the Board of Directors of MAAC determines, in good faith, that a special dividend must be paid to avoid taxes due to excess gains from the sale of Property. 6.8. Other Financial Covenants (a) Permit Total Liabilities to exceed sixty percent (60%) of the Total Market Value of Assets. (b) Permit Total Development and Joint Venture Investment to exceed (i) eleven percent (11%) of the Total Market Value of Assets from the date hereof through December 31, 1998, and (ii) ten percent (10%) of the Total Market Value of Assets, commencing on January 1, 1999, until the termination of this Agreement. (c) Fail to maintain as of the end of each fiscal quarter a ratio of Annualized EBITDA for trailing six (6) months to Total Annualized Fixed Charges for the same period of at least 1.75 to 1.0. (d) Fail to maintain as of the end of each fiscal quarter a ratio of Annualized EBITDA for trailing six (6) months to Total Annualized Debt Service on Indebtedness for the same period of at least 2.0 to 1.0. (e) Fail to maintain at all times beginning on the Effective Date a consolidated Tangible Net Worth which is not less than Four Hundred Seventy Million Dollars ($470,000,000) plus seventy percent (70%) of net proceeds of new equity offerings. (f) Permit the ratio of Adjusted NOI for all Mortgaged Properties (based on the prior three (3) months, annualized) to Assumed Debt Service to be less than 1.0 to 1.0. 6.9. Control Permit any Person, or group of Persons, acting in concert for the purpose of influencing the affairs of MAAC to control more than twenty percent (20%) of the outstanding voting shares of MAAC. 6.10. Subsidiary Ownership Sell, transfer or otherwise dispose of any shares of stock or partnership interests or other ownership interest in any Subsidiary that is the owner of a Mortgaged Property, or permit any such shares of stock or partnership interests or other ownership interest to be disposed of, sold, or otherwise transferred. 6.11. Subsidiary Debt Permit any Subsidiary that is the owner of a Mortgaged Property to incur, create, or permit to exist any indebtedness to any Person other than the Lenders with the exception of purchase money security interests and contractual obligations, incurred in the ordinary course of the apartment leasing business. VII. Default 7.1. Events of Default Each of the following events shall be a Default by the Borrowers: (a) the Borrowers fail to pay - any principal of a Loan when due, - any interest on a Loan within five (5) Business Days after the Administrative Agent provides the Borrower with written notice of such failure (except interest due and payable on the Termination Date which must be paid on the Termination Date), or - a fee or other amount payable under this Agreement within five (5) Business Days after the Administrative Agent provides the Borrower with written notice of such failure; or (b) a representation, warranty, certification or statement made by either Borrower in this Agreement or in a certificate, financial statement or other document delivered pursuant to this Agreement is materially incorrect when made (or deemed made); or (c) either Borrower fails to observe or perform - a covenant applicable to it regarding use of Loan proceeds, notice of Defaults or maintenance of existence, merger, or sales of assets; or - a financial covenant applicable to it contained in Section 5 or Section 6; or (d) either Borrower fails to observe or perform a covenant or agreement made by it in this Agreement (other than those referred to in Section 7.1(a), 7.1(b) or 7.1(c) above) for 30 days after the Administrative Agent notifies the Borrower of such failure; or (e) either Borrower defaults with respect to any other agreement to which either Borrower is a party or with respect to any other indebtedness when due or the performance of any other obligation incurred in connection with any indebtedness for borrowed money, if the Borrower's obligations or exposure exceeds $500,000, and if the effect of such default is to accelerate the maturity of such indebtedness, or if the effect of such default is to permit the holder thereof to cause such indebtedness to become due prior to its stated maturity; provided, however, if the amount in default is less than $1,000,000 and no other default exists under any other agreement described in this subparagraph, and the Borrower is diligently and in good faith contesting any default under this paragraph to the reasonable satisfaction of the Administrative Agent, it shall not be a Default hereunder; or (f) either Borrower or any Subsidiary that is at the time the owner of a Mortgaged Property - commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief for itself or its debts under a bankruptcy, insolvency, receivership or similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official of it or a substantial part of its property, - consents to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, - makes a general assignment for the benefit of creditors, - fails generally to pay its debts as they become due, or - takes the appropriate action to authorize any of the foregoing; or (g) an involuntary case or other proceeding is commenced against either Borrower or any Subsidiary that is at the time the owner of a Mortgaged Property seeking liquidation, reorganization or other relief with respect to it or its debts under a bankruptcy, insolvency, receivership or other similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official of the Borrower or such Subsidiary or a substantial part of its property, and such case or proceeding (i) results in an order for relief or such adjudication or appointment, or (ii) remains undismissed and unstayed for 60 days; or (h) - a member of the Controlled Group fails to pay when due an aggregate amount in excess of $5,000,000 that it is liable to pay to the PBGC or to a Pension Plan under Title IV of ERISA, - a member of the Controlled Group and/or a plan administrator files a notice of intent under Title IV of ERISA to terminate a Pension Plan or Pension Plans having aggregate Unfunded Vested Liabilities in excess of $35,000,000 (collectively, a Material Pension Plan), - the PBGC institutes proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer a Material Pension Plan, - a fiduciary of a Material Pension Plan institutes a proceeding against a member of the Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding is not dismissed within 60 days thereafter, - a condition exists that entitles the PBGC to obtain a decree adjudicating that a Material Pension Plan must be terminated, or - either Borrower is notified by the plan administrator of a Pension Plan that the Pension Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and solely as a result of such reorganization or termination the aggregate annual contributions of the Borrower to all Pension Plans that are then in reorganization or have been or are being terminated is increased over the amounts required to be contributed to such Pensions Plans for their most recently completed plan years by an amount exceeding $15,000,000; or (i) a judgment or order against either Borrower or any Subsidiary that is at the time the owner of a Mortgaged Property for the payment of more than $1,000,000 continues unsatisfied and unstayed for 60 days or a judgment creditor takes legal action to levy on such judgment; or (j) either Borrower or any Subsidiary that is at the time an owner of a Mortgaged Property shall have concealed, removed, or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or shall have suffered or permitted, while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings or distraint which is not vacated within thirty (30) days from the date thereof; or (k) there shall occur, whether in a single transaction or successive transactions, a change or changes in the ownership of more than five percent (5%) of the partnership interests of Mid-America, or Mid America shall grant or convey or permit to be granted or conveyed, voluntarily or involuntarily, directly or indirectly, any security interest in, pledge of or other lien or encumbrance upon any owner's partnership interests in Mid-America; or MAAC shall cease to be the sole general partner of Mid-America; or any single Person or related group of Persons shall control more than twenty percent (20%) of MAAC's voting shares. Exchanges by existing limited partners of Mid-America of their respective limited partnership interests for capital stock of MAAC, not exceeding, in the aggregate, as to all such exchanges, transfers of not more than thirty-five percent (35%) of the partnership interests of Mid-America, shall not constitute an Event of Default; or (l) any officer of MAAC who, in the reasonable judgment of the Administrative Agent, occupies a position of substantial and material management, responsibility ("Material Officer"), shall, by reason of death, permanent disability, or departure from the employ of MAAC, cease to be active in the management of MAAC, and MAAC does not, within a period of five (5) Business Days from such permanent disability, death or departure, deliver written notice of such event to the Administrative Agent and, within a period of thirty (30) days from such permanent disability, death or departure, secure a replacement for such officer, such replacement to be, by reason of his or her experience and credentials, reasonably satisfactory to and approved by the Administrative Agent. For the purposes of this Section (l), permanent disability means any disability that prevents such Material Officer from rendering, in any one calendar year, full-time services for a period of thirty (30) consecutive days, or in the aggregate, for forty-five (45) days, and (ii) at the present time, the Persons whom the Administrative Agent deems to be Material Officers are George E. Cates, Simon R.C. Wadsworth, and H. Eric Bolton, Jr. Further, the Administrative Agent shall have the right to review and approve the credentials of any individual proposed for the office of President or Executive Vice President of MAAC; or (m) Except as expressly permitted in Section 3.4, or except with the consent of Two-Thirds of the Lenders, which consent shall not be unreasonably withheld, Mid-America or any Subsidiary granting to the Administrative Agent a Mortgage shall sell, assign, transfer, convey, lease with an option to purchase, enter into a contract of sale, grant an option to purchase, or encumber all or any part of its interest in any Mortgaged Property or any portion thereof, or permit the same to be sold, assigned, transferred, conveyed, contracted for or encumbered; provided, however, the entering of either a contract of sale or option to purchase shall not be a default hereunder so long as such contract of sale or option to purchase requires the fulfillment of the conditions set forth in Section 3.4 above; and provided further, however, that the encumbrance of any Mortgaged Property by any mechanic's lien claim shall not be deemed to constitute an Event of Default so long as a Borrower shall promptly notify the Administrative Agent of such mechanic's lien claim, and shall diligently and in good faith contest (or cause to be contested) the same by appropriate proceedings and shall establish such reserves with respect thereto as the Administrative Agent shall specify; or (n) MAAC fails to maintain its qualification as a real estate investment trust under the Code. 7.2. Action on Default During the continuance of a Default, the Administrative Agent shall, if requested by Two-Thirds of the Lenders, notify the Borrowers that - the Borrowers' Rights are terminated, whereupon such Borrowing Rights shall terminate, or - all the Borrowers' Loans, with accrued interest, and all other amounts payable by the Borrowers under this Agreement, are immediately due and payable, whereupon all such Loans, accrued interest and other amounts payable under this Agreement shall be immediately due and payable by the Borrowers without presentment, demand, protest or other notice of any kind, all of which the Borrowers waive, provided that if the Default is one described in Section 7.1(f) or 7.1(g), then without notice to the Borrowers or other act by the Administrative Agent or Two-Thirds of the Lenders, the Borrowers' Borrowing Rights shall immediately terminate, and the Loans, with accrued interest, and other amounts payable under this Agreement, shall become immediately due and payable by the Borrowers without presentment, demand, protest or other notice of any kind, all of which the Borrowers waive, and the Administrative Agent may and shall, at the request of Two-Thirds of the Lenders, exercise all rights and remedies available to it hereunder and under applicable law or in equity. 7.3. Notice of Default On the request of a Lender, the Administrative Agent shall promptly give the notice referred to in Section 7.1(d) and shall promptly notify all the Lenders that such notice has been given. VIII. The Administrative Agent 8.1. Appointment and authorization Each Lender irrevocably authorizes the Administrative Agent to take such action as agent on the Lender's behalf and to exercise such powers as are given to the Administrative Agent under this Agreement, together with all powers reasonably incidental thereto. 8.2. Other conduct The Administrative Agent and its Affiliates - shall have the same rights and powers under this Agreement as any other Lender and may exercise or refrain from exercising such rights and powers as though it were not the Administrative Agent and - may accept deposits from, lend money to and generally engage in any kind of business with the Borrowers or their Affiliates as if it were not the Administrative Agent. 8.3. Scope of obligations The obligations of the Administrative Agent under this Agreement are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to a Default except as expressly provided in Section 7. The Administrative Agent shall administer the Loans and perform its duties hereunder using the same degree of care it uses in the administration of its own loans of similar amount and structure. 8.4. Consultation with experts The Administrative Agent may consult with legal counsel, independent public accountants and other experts selected by the Administrative Agent and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. 8.5. Liability of Administrative Agent Neither the Administrative Agent nor any of its directors, officers, agents, or employees shall be - liable for any action it takes or does not take in connection with this Agreement (i) with the consent or at the request of Two-Thirds of the Lenders, unless the consent or request of all of the Lenders is expressly required by this Agreement, or (ii) in the absence of its own gross negligence or willful misconduct, or - responsible for or have a duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or a Borrowing, (ii) a Borrower's performance or observance of any covenant or agreement, (iii) the satisfaction of any condition in Section 3 (except for the receipt of items required to be delivered to the Administrative Agent), or (iv) the validity, effectiveness or genuineness of this Agreement or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telex, telecopy or similar writing) it believes is genuine or signed by the proper parties. 8.6. Indemnification Each Lender shall, ratably in accordance with its Commitment, indemnify the Administrative Agent (to the extent not reimbursed by the Borrowers) against any cost, expense, claim, demand, action, loss or liability (except such as result from the Administrative Agent's gross negligence or willful misconduct) that the Administrative Agent may suffer or incur in connection with this Agreement or any action the Administrative Agent takes or omits hereunder. 8.7. Successor Administrative Agent The Administrative Agent may resign by giving notice thereof to the Lenders and the Borrowers. So long as no Default exists, the Administrative Agent may be removed upon the request of the Borrowers. Upon such resignation or removal, the Borrowers may appoint a successor Administrative Agent with the consent of Two-Thirds of the Lenders. If the Borrowers are in Default, Two-Thirds of the Lenders may appoint a successor Administrative Agent. If the Administrative Agent resigns or is removed and no successor Administrative Agent is so appointed and accepts such appointment within 30 days after the resigning Administrative Agent's notice of resignation or its removal, then the resigning or removed Administrative Agent may, on behalf of the Lenders, shall appoint a successor Administrative Agent that is a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon a successor Administrative Agent's written acceptance of its appointment as Administrative Agent, the successor Administrative Agent shall succeed to and become vested with all the rights and duties of the resigning or removed Administrative Agent, and the resigning or removed Administrative Agent shall be discharged from its duties and obligations as Administrative Agent. After the Administrative Agent's resignation or removal, the provisions of this Section 8 shall continue to inure to its benefit as to any action it took or omitted to take while it was Administrative Agent. 8.8. Fees The Borrowers shall pay the Administrative Agent for its account such fees for its services under this Agreement as the Borrowers and the Administrative Agent may agree. IX. Change in circumstances 9.1. Eurocurrency Reserve Requirements If a Lender notifies the Administrative Agent and the Borrowers that the Lender is or will be generally subject to Eurocurrency Reserve Requirements as a result of which the Lender will incur additional costs on its Loans, then the Lender shall, to the extent such costs are actually incurred, for each day from the later of the date of such notice and the date on which the Lender becomes subject to the Eurocurrency Reserve Requirements, be entitled to additional interest on each Loan made by the Lender at a rate per annum (rounded upward to the nearest .01%) equal to the remainder obtained by subtracting (i) LIBOR for the Eurodollar Loan from (ii) the rate obtained by dividing such LIBOR by the excess of 100% over the Eurocurrency Reserve Requirements. Such additional interest shall be payable in arrears to the Administrative Agent, for the account of the Lender, on each date interest is payable on the Loan. A Lender that gives a notice under this Section 9.1 shall promptly withdraw such notice by notifying the Administrative Agent and the Borrowers if Eurocurrency Reserve Requirements cease to apply to it or the circumstances giving rise to such notice otherwise cease to exist. 9.2. Increased cost or reduced return If any Regulatory Action (other than the imposition of Eurocurrency Reserve Requirement) taken after the date hereof - imposes, modifies or deems applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by a Lender or its Office, - imposes on a Lender or its Office or the London interbank market any other condition affecting the Lender's Eurodollar Loans, or - imposes, modifies or deems applicable any standards of capital adequacy, and such Regulatory Action will, in the Lender's judgment, - increase the cost to the Lender or Office of making or maintaining any Eurodollar Loan, - reduce the amount receivable by the Lender or Office under this Agreement with respect to any such Eurodollar Loan, or - reduce the rate of return on the Lender's capital as a consequence of its obligations under this Agreement (taking into consideration the Lender's policies on capital adequacy) by an amount the Lender deems material, then the Lender shall promptly notify the Borrowers and the Administrative Agent thereof, enclosing (i) a certificate of an officer of the Lender describing the Regulatory Action leading to the increased costs or reduction with, if possible, a copy of the relevant law, regulation, interpretation or guideline and (ii) the Lender's calculation setting forth in reasonable detail the dollar amount of the increased costs or reduction. determination of amount In calculating any amount payable under this Section 9.2, a Lender may use reasonable averaging and attribution methods. A Lender's determination of the amount shall be conclusive in the absence of manifest error. payment of compensation Subject to the following sentence, the Borrowers shall pay a Lender within 30 days after receipt of a notice from the Lender under this Section 9.2 such amounts as will compensate the Lender for the increased costs or reduction. The Borrowers will not, however, be required to pay the Lender any amount set forth in the notice that relates to any period prior to the 30th day before the date the Lender gives the notice. Each Lender agrees that it shall notify the Borrowers immediately upon becoming aware of such increased costs. Base Rate election by Borrower If a Lender demands compensation under this Section 9.2 with respect to a Eurodollar Loan, then the Borrowers may, on at least five Business Days' prior notice to the Lender and the Administrative Agent, elect that, until the Lender or the Administrative Agent notifies the Borrowers that the circumstances giving rise to the demand for compensation no longer apply, all Loans to the Borrowers that would otherwise be made by the Lender as Eurodollar Loans, shall be made instead as Loans at the Base Rate (on which interest and principal shall be payable contemporaneously with the related Loans of the other Lenders). 9.3. LIBOR unavailable or inadequate If on or before the second Business Day before an Interest Period for a Borrowing - dollar deposits in the applicable amounts are not being offered to the Administrative Agent in the relevant market for the Interest Period, or suspension of obligation to make Loans - Two-Thirds of the Lenders advise the Administrative Agent that the LIBOR will not adequately and fairly reflect the cost to such Lenders of funding their Loans for the Interest Period, then the Administrative Agent shall promptly notify the Borrowers and the Lenders thereof, whereupon the obligations of the Lenders to make, or permit Conversion of Loans into, Eurodollar Loans shall be suspended, and any subsequent request by the Borrowers for a Eurodollar Loan or for Conversion into a Eurodollar Loan shall be deemed to be a request for, or for Conversion into, a Loan bearing interest at the Base Rate. suspension after Borrowing Notice given If the Lenders' obligations to make Loans is suspended pursuant to this Section 9.3 after the Borrowers give the Borrowing Notice for the Borrowing that includes such Loans, then unless the Borrowers notify the Administrative Agent at least one Business Day before the date of such Borrowing that the Borrowers elect not to borrow on such date, the Borrowing shall instead accrue interest at the Base Rate. 9.4. Illegal Loans If, after the date of this Agreement, any Regulatory Action makes it unlawful or impossible for a Lender or its Office to make, maintain or fund its Eurodollar Loans, and the Lender so notifies the Administrative Agent, then the Administrative Agent shall promptly notify the other Lenders and the Borrowers, whereupon the obligation of the Lender to make or permit Conversions into Eurodollar Loans shall be suspended. prepayment of illegal Loans If a Lender determines that it may not lawfully continue to maintain an outstanding Eurodollar Loan to the Borrowers to the end of the Eurodollar Loan's applicable Interest Period and so specifies in the notice it gives pursuant to this Section 9.4, the Administrative Agent shall so notify the Borrowers, and the Borrowers shall immediately prepay in full the unpaid principal amount of the Eurodollar Loan with accrued interest. As each such Loan is prepaid, the Lender shall make a Loan bearing interest at the Base Rate to the Borrower in an equal principal amount with interest and principal payable contemporaneously with the related Loans of the other Lenders. new Loans made as Base Rate Loans If the obligation of a Lender to make Eurodollar Loans is suspended pursuant to this Section 9.4, then until the Lender or the Administrative Agent notifies the Borrowers that the circumstances giving rise to the suspension no longer apply, all Loans that would otherwise be made by the Lender as Eurodollar Loans shall be made instead as Loans accruing interest at the Base Rate (on which interest and principal shall be payable contemporaneously with the related Loans of the other Lenders). 9.5. Termination of suspension When the circumstances giving rise to a suspension of the obligation to make Eurodollar Loans under Section 9.3 or Section 9.4 no longer exist, the Administrative Agent shall so notify the Borrowers and the Lenders, whereupon the suspension shall terminate. 9.6. Taxes on payments (a) Each Lender shall deliver to each of the Borrowers and to the Administrative Agent: - no more than 30 days after the date it becomes a Lender, either a statement that it is incorporated in the United States of America or, if it is not so incorporated, two duly completed copies of, as applicable, a United States Internal Revenue Service Form 1001 or Form 4224 (including a Form W-9 or equivalent) promulgated under the Internal Revenue Code (each, as applicable to any Person and together with any successor form, a "Tax Form") indicating that the Lender is entitled to receive payments under this Agreement without deduction or withholding of United States federal income Taxes as permitted by the Internal Revenue Code, - such extensions or renewals of the Tax Form as applicable because of expiration of the Tax Form or as the Borrowers reasonably request (but only to the extent the Lender determines that it may properly effect such extensions or renewals under applicable Tax treaties, laws, regulations and directives), and - if a Loan is transferred to an Affiliate of the Lender, a new Tax Form for the Affiliate. The Borrowers and the Administrative Agent may each rely on a Tax Form in its possession until the earlier of the expiration date of the Tax Form or receipt of any revised or successor form pursuant to this Section 9.6. (b) If a Tax imposed by the United States of America, or any political subdivision or taxing authority thereof, subjects a Lender or its Office to any deduction or withholding on a payment (including fees) on its Loans to the Borrowers, the Lender shall promptly notify the Borrowers of the Tax, enclosing a copy of the relevant statute, regulation or interpretation requiring the deduction or withholding and setting forth in reasonable detail the Lender's calculation of the dollar amount of the Tax. Within 30 days after it receives the notice (or a longer period that complies with the law relating to the Tax without subjecting the Lender to additional payments with respect to the Tax), the Borrowers shall, as requested by the Lender in the notice, - increase the amount of the payment so that the Lender will receive a net amount (after deduction of the Tax) equal to the amount due hereunder, - pay the Tax to the appropriate taxing authority for the Lender's account, and - as promptly as possible, send the Lender evidence showing payment of the Tax, together with any additional documentary evidence the Lender reasonably requests. The Borrowers shall indemnify a Lender for any incremental Taxes, interest or penalties that may become payable as a result of the Borrowers' failure to comply with this Section 9.6. (c) Notwithstanding anything to the contrary in this Section 9.6, the Borrowers shall not be required to make any payment to a Lender or taxing authority under this Section 9.6 as a result of any deduction or withholding or incremental Tax, interest or penalty - that is caused by the Lender's failure or inability to furnish the Borrowers with a Tax Form, or an extension or renewal thereof, pursuant to this Section 9.6 unless such failure or inability is the result of a change in an applicable law, regulation or Tax treaty or in the interpretation thereof by a regulatory authority that becomes effective after the date of this Agreement, or - for any period for which the Lender or its applicable Office has furnished a Tax Form to the Borrowers that incorrectly indicates that the Lender or its applicable Office is not subject to such deduction or withholding. 9.7. Change of Office A Lender shall designate a different Office for its Loans if such designation will avoid the need for giving a notice pursuant to Section 9.4 with respect to suspension of Loans, or reduce the amount of compensation under Section 9.2 (Increased cost or reduced return), or Section 9.6, (Taxes on payments), and will not, in the Lender's judgment, be disadvantageous to the Lender. 9.8. Replacement of Lender If - the obligation of a Lender to make Eurodollar Loans is suspended under Section 9.4 (Illegal Loans), - a Lender demands compensation or payment under Section 9.2 (Increased cost or reduced return), or Section 9.6 (Taxes on payments), or - a Lender's senior unsecured debt is rated lower than BBB- by S&P, then the Borrowers may, on five Business Days' notice to the Administrative Agent and the Lender, select a replacement bank or banks (which may be one or more of the other Lenders) to purchase the Lender's Loans and assume its Commitment. The purchase price for the Lender's Loans shall be the sum of the unpaid principal amount of the Loans, with accrued interest, the Lender's share of accrued but unpaid Fees and other amounts due to the Lender under this Agreement (including any amounts due under Section 1.20 (Funding losses) for each Loan so purchased on a date other than the last day of the Interest Period for the Loan) less the prorated portion of the Fees previously received by such Lender, from the date of such purchase through the last day of the applicable period for which the Fees had been paid. Upon the execution and delivery of an assignment and assumption agreement substantially in the form of Exhibit G by such Lender and each replacement bank (and, if the replacement bank is not a Lender, with the subscribed consent of the Borrowers and the Administrative Agent), each such replacement bank shall be deemed to be, a 'Lender' for all purposes of this Agreement, and the Administrative Agent shall notify the other Lenders accordingly. X. Miscellaneous 10.1. Notices Except as otherwise stated, all notices, requests, consents and other communications to any party to this Agreement shall be in writing. For purposes of this Section 10.1 (writing) shall include writings in any form that provides the recipient, using the systems routinely used by the recipient for communication, with a permanent record and a human-readable text. All notices to a party shall be given at the addresses, telecopy number or other electronic addresses or by other methods set forth on Schedule 3 or at such other addresses, numbers or by such other reasonable methods as such party may specify for the purpose by notice to the Administrative Agent and the Borrowers (each a "Notice Address"). Each notice, request, consent or other communication given under this Agreement shall be effective when received at the number or address or by the method specified pursuant to this Section 10.1. Any requirement in this Agreement that a notice or other communication be 'prompt' or be given 'promptly' shall mean that such notice or other communication shall promptly be transmitted by telephone (if oral notice is permitted), bank wire, telex, telecopy, computer link or other means that normally provides nearly instantaneous transmission. 10.2. No waivers; remedies cumulative; integration; survival No failure or delay by the Administrative Agent or a Lender in exercising a right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement shall be cumulative and not exclusive of other rights or remedies provided by law. This Agreement constitutes the entire agreement and understanding among the parties and supersedes all prior agreements and understandings, oral or written, relating to its subject matter. All covenants, agreements, representations and warranties of the Borrowers in this Agreement or in certificates or other documents delivered pursuant to this Agreement shall be considered to have been relied on by the Lenders and shall survive the making of any Loans, regardless of any investigation made by or on behalf of the Lenders, and shall continue in full force and effect as long as any obligation of the Borrowers under this Agreement is unpaid or the Borrowers' Borrowing Rights have not terminated. 10.3. Expenses; documentary Taxes The Borrowers shall pay, and shall be jointly and severally liable for, the reasonable Expenses of the Administrative Agent in connection with (i) its drafting and negotiation of this Agreement, any waiver or consent hereunder or any amendment hereof (all of which documents shall be prepared by counsel for the Administrative Agent) and (ii) the effectiveness of this Agreement under Section 3.1. If a Default by the Borrowers occurs, the Borrowers shall pay the reasonable Expenses incurred by the Administrative Agent in connection with such Default. In addition, if there is a Default by the Borrowers, the Borrowers shall pay the reasonable Expenses incurred by any Lender, including collection and other enforcement proceedings, resulting therefrom. The Borrowers shall, jointly and severally, indemnify the Administrative Agent and the Lenders against all transfer, documentary or similar Taxes payable by reason of the execution and delivery of the Notes and this Agreement, and the execution, delivery and recordation of the Mortgages. 10.4. Indemnification Each Borrower shall indemnify the Administrative Agent and each Lender and shall hold the Administrative Agent and each Lender jointly and severally harmless from and against any and all liabilities, damages, costs and Expenses of any kind in connection with an actual or threatened investigative, administrative or judicial proceeding (whether or not the Administrative Agent or Lender is a party thereto) (collectively, "Claims") incurred by the Administrative Agent or Lender to the extent arising out of - a Borrower's breach of, or any Default under, this Agreement, - any claim by a Person not a party to this Agreement that either Borrower's, the Administrative Agent's or a Lender's conduct in connection with this Agreement is unlawful by a court of competent jurisdiction or has or will violate such Person's legal rights, but only to the extent that the Lender's or Administrative Agent's conduct is deemed unlawful or violative due to some action or inaction of the Borrowers or either of them, - an actual or proposed use of Loan proceeds by the Borrowers, or - an action initiated by either or both Borrowers against the Administrative Agent or a Lender relating to this Agreement, unless a court of competent jurisdiction enters a final non-appealable order on the entire merits of the controversy in such action in favor of the Borrowers. Notwithstanding anything to the contrary in this Section 10.4, neither the Administrative Agent nor a Lender shall be indemnified for any Claim to the extent such Claim - is caused by the Administrative Agent's or Lender's gross negligence or willful misconduct, as determined in a final non-appealable order by a court of competent jurisdiction, or - results from a Lender's claims against other Lenders not attributable to a Borrower's actions and for which the Borrowers otherwise have no liability. 10.5. Sharing of set-offs If a Lender exercises a right of set-off or counterclaim or otherwise receives payment of a portion of the aggregate amount of principal and interest due on its Loans to the Borrowers, and such payment is greater than the proportion received by any other Lender of the aggregate amount of principal and interest due on such other Lender's Loans to the Borrowers, the Lender receiving the proportionately greater payment shall purchase participations in the Loans made to the Borrowers by the other Lenders, and other adjustments shall be made as required so that all payments of principal and interest on the Loans to the Borrowers shall be shared by the Lenders pro-rata, provided that this Section 10.5 shall not impair a Lender's right to exercise, to the extent permitted by applicable law, a right of set-off or counterclaim and to apply the amount subject to such exercise to the payment of indebtedness of the Borrowers other than indebtedness on Loans. A Participant in a Loan, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to its participation as fully as if the Participant were a direct creditor of the Borrowers in the amount of such participation. 10.6. Amendments and waivers An amendment to or waiver of a provision of this Agreement must be in writing and signed by the Borrowers and Two-Thirds of the Lenders (and, if the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent), provided that each affected Lender must sign an amendment, waiver or consent that (a) increases or decreases the Commitment of such Lender or subjects such Lender to additional obligations, except as contemplated in Section 9.8 (Replacement of Lender), (b) reduces the principal of or rate of interest on any Loan or any fees hereunder, (c) postpones the Maturity Date or other date fixed for payment of principal or interest on a Loan or of any fees hereunder or for the termination of the Borrowers' Borrowing Rights, (d) changes the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the Borrowing Base, or the number of Lenders required for the Lenders to take any action under this Agreement, (e) amends Section 1.19 (Pro-rata treatment), (f) amends this Section 10.6, or (g) releases substantially all of the Mortgaged Property. 10.7. Successors and assigns (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, except that neither Borrower may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement. (b) A Lender may grant a bank or other institution (a "Participant") a participating interest in its Commitment or some or all of its Loans. If a Lender grants a participating interest to a Participant, the Lender shall remain responsible for the performance of its obligations under this Agreement, and the Borrowers and the Administrative Agent shall continue to deal solely with the Lender in connection with this Agreement, regardless of whether the Lender has notified the Borrowers and the Administrative Agent of the grant. An agreement granting such a participating interest shall provide that the Lender shall retain the sole right and responsibility to enforce the obligations of the Borrowers under this Agreement, including the right to approve any amendment, modification or waiver of any provision of this Agreement. Subject to Section 10.7(e) (funding losses and changed circumstances), a Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Section 9 (Change in circumstances), with respect to its participating interest. An assignment or other transfer that is not permitted by Section 10.7(c) (assignments), or 10.7(d) (assignment to Federal Reserve Bank), shall be given effect only to the extent that it is a participating interest granted in accordance with this Section 10.7(b). (c) A Lender may assign to one or more banks or other institutions (each an "Assignee") all or a proportionate part of its rights and obligations under this Agreement, and each Assignee shall assume such rights and obligations, pursuant to an assignment and assumption agreement in substantially the form of Exhibit G. The assignment and assumption agreement shall be signed by the Assignee and the transferor Lender, with (and subject to) the subscribed acknowledgment and consent of the Administrative Agent and the subscribed consent, which shall not be unreasonably withheld, of the Borrowers, provided that such consents shall not be required if the Assignee is a Lender or a Federal Reserve Bank, and provided further that the consent of the Borrowers shall not be required after and during the continuance of a Default. (d) Upon the later of (i) the effective date stated in the assignment and assumption agreement (which shall not be earlier than the fifth Business Day after execution of such agreement) or (ii) payment by the Assignee to the transferor Lender of the purchase price agreed between them, and payment by the transferor Lender or the Assignee to the Administrative Agent of a registration and processing fee of $2,500, (i) the Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with the Commitment set forth in the assignment and assumption agreement, (ii) the transferor Lender shall be released from its obligations under this Agreement to a corresponding extent so long as the Assignee at the time of transfer has a net worth at least equal to the net worth of the transferor Lender, (iii) The Borrower shall execute and deliver replacement Notes to the order of the Assignee and, if necessary, the assigning Lender; and (iv) no further consent or action by any party shall be required. (e) A Lender may assign all or a proportionate part of its rights under this Agreement to a Federal Reserve Bank, and the Borrowers, if requested by the Lender, shall issue a promissory note to be pledged to the Federal Reserve Bank evidencing the Borrowers' obligations on the Lender's Loans to the Borrowers. Such assignment shall not release the transferor Lender from its obligations under this Agreement. (f) No Assignee, Participant or other transferee of any Lender's rights may receive any greater payment under Section 1.20 (Funding losses), and Section 9.2 (Increased cost and reduced return), than the transferor Lender would have received with respect to the rights transferred, unless such transfer was made with the Borrowers' prior consent. (g) The Administrative Agent shall maintain at one of its offices in Birmingham, Alabama, a copy of each assignment and assumption agreement delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender (the "Register"). The entries in the Register shall be conclusive in the absence of manifest error, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers or Lender at any reasonable time upon reasonable notice. (h) If an Assignee is not already a Lender, it shall deliver to the Administrative Agent a completed administrative questionnaire in the form required by the Administrative Agent. Upon its receipt of (i) an assignment and assumption agreement executed by an assigning Lender and an Assignee (and, if required, by the Borrowers), (ii) the completed administrative questionnaire (unless the Assignee is already a Lender) and (iii) the registration and processing fee referred to in Section 10.7(c), the Administrative Agent shall record the information contained in the assignment and assumption agreement in the Register and give prompt notice thereof to the Lenders. 10.8. Borrowers' liability The parties acknowledge that the rights and obligations (including the representations, warranties, agreements, breaches, liabilities, indemnities and Defaults) of the Borrowers under this Agreement are joint and several. 10.9. No reliance on Margin Stock collateral Each Lender represents to the Administrative Agent and the other Lenders that it is not relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. 10.10. Credit decision Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it deems appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. 10.11. Alabama law This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama. 10.12. Waiver of jury trial The Borrowers, the Lenders and the Administrative Agent hereby irrevocably and unconditionally waive trial by jury in any legal action or proceeding relating to this Agreement and for any counterclaim therein. 10.13. Venue of Actions As an integral part of the consideration for making of the Loans, it is expressly understood and agreed that no suit or action shall be commenced by either Borrower, or by any successor, personal representative or assignee thereof, with respect to the Loans contemplated hereby, or with respect to this Agreement or any other document or instrument which now or hereafter evidences or secures all or any part of the Loans, other than in a state court of competent jurisdiction in and for the County of the State in which the principal place of business of the Administrative Agent is situated, or in the United States District Court for the District in which the principal place of business of the Administrative Agent is situated, and not elsewhere. Nothing in this paragraph contained shall prohibit the Administrative Agent from instituting suit in any court of competent jurisdiction for the enforcement of its rights hereunder or in any other document or instrument which evidences or secures the loan indebtedness. 10.14. Execution This Agreement may be executed in counterparts. Delivery of an executed counterpart signature page to this Agreement, including delivery by telecopier, shall be effective as delivery of a manually executed counterpart of this Agreement. 10.15. Survival Section 9 (Change in circumstances), Section 10.3 (Expenses), and Section 10.4 (Indemnification) shall survive termination of this Agreement or the Borrowers' Borrowing Rights. XI. Definitions and usages 11.1. Definitions In this Agreement, the following terms shall have the following meanings: Adjusted NOI shall mean, as to any Mortgaged Property, for any period, the actual Net Operating Income of such Mortgaged Property for such period; provided that (i) all annual expenses, including, but not limited to, taxes and insurance, shall be accounted for on an accrual basis; and (ii) expenses shall include an assumed management fee of five percent (5%) and capital expenditures of Two Hundred Dollars ($200.00) per rental unit on average per year. Administrative Agent shall mean AmSouth Bank, its successors or assigns. Advance Rate shall mean for Mortgaged Properties: (a) the amount shown as the Advance Rate on Schedule 2 for the Initial Properties from the date hereof until the first quarterly determination of Fair Market Value, which shall occur on March 22, 1998, except for Paddock Park Ocala II, which shall occur on June 22, 1998; (b) subject to subclauses (d) and (e) herein, 60% of Fair Market Value for a Stabilized Property (including the Initial Properties after the first quarterly determination of Fair Market Value); (c) subject to adjustment as provided in Section 1.16(c), 50% of the Project Budget to the extent of Work Completed for a Development Project; (d) for the period commencing on the date a Development Project is converted to a Stabilized Property in accordance with Section 3.5(b), until the next succeeding quarterly determination of Fair Market Value, 60% of the appraised value of the subject Development Project, as reflected in the appraisal ordered and approved by the Administrative Agent; and (e) for the period commencing on the date a Stabilized Property is added to the Borrowing Base and continuing thereafter through a full calendar quarter, 60% of the appraised value of the subject Stabilized Property, as reflected in the appraisal ordered and approved by the Administrative Agent. Advances or Loan Advances shall mean advances of principal upon the Loans by the Lenders to either or both of the Borrowers under the terms of this Agreement, specifically including, without limitation, advances under the Swing Line Facility, the Notes and draws under the Letters of Credit. Affiliate of a specified Person means another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the specified Person. In the foregoing definition, control of a Person means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Aggregate Commitment means the sum of the Commitments of the Lenders at any time available to the Borrower under the Loans. Annualized Adjusted NOI shall mean, for the most recent two calendar quarters, the Adjusted NOI for such calendar quarters, multiplied by the integer two (2). Annualized EBITDA shall mean EBITDA for the most recent two calendar quarters, multiplied by the integer two (2). Apartment Community shall mean an apartment community owned by either Borrower or Subsidiary, whether or not it is subject to a Mortgage. Assignee shall have the meaning assigned to such term in Section 10.7(c). Assumed Debt Service shall mean the assumed amortization of the outstanding Loans, calculated on the basis of a 25-year amortization and an 8.5% interest rate. Base Rate shall mean (a) from the date hereof through June 30, 1998, a rate per annum equal to the Prime Rate minus .75%, and (b) commencing July 1, 1998, but subject to Section 1.13(e), continuing thereafter until the Loans are paid in full, a rate equal to the Prime Rate. Any change in the Base Rate due to a change in the Prime Rate shall be effective on the effective date of such change in the Prime Rate. Base Rate Loan means a Loan bearing interest at the Base Rate. Borrowers mean MAAC and Mid-America, jointly, and, individually, a "Borrower". Borrowing shall have the meaning assigned to that term in Section 1.2. Borrowing Base is the limitation on the amount of the Loan which may be outstanding at any time and from time to time during the term of this Agreement. The Borrowing Base shall equal (a) the Advance Rate for Stabilized Properties which at the time of determination are subject to the Mortgages plus (b) the Advance Rate for Development Projects which at the time of determination are subject to Mortgages; provided, however, the amount available under (b) above shall in no event exceed $50,000,000 in the aggregate at any one time outstanding. Borrowing Base Certificate shall mean a certificate substantially in the form of Exhibit F, duly executed by the Certifying Officer, setting forth in reasonable detail the calculations for each component of the Borrowing Base. Borrowing Notice shall have the meaning assigned to that such term in Section 2.1. Borrowing Rights of the Borrowers means the rights of the Borrowers under this Agreement to require the Lenders to make Loans. Business Day means a day other than a Saturday, Sunday or other day on which commercial banks in Birmingham, Alabama and New York, New York are authorized or required by law to close. Certificate of Occupancy shall mean a certificate of occupancy issued by the governmental authority in whose jurisdiction the subject Mortgaged Property lies, or such other comparable governmental approval if a certificate of occupancy is not utilized by the applicable governmental authority. Certifying Officer shall mean MAAC's chief financial officer. Claims shall have the meaning assigned to that term in Section 10.4. Code shall mean the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. Commitment shall mean the portion of the Loans to be made available by a Lender. Controlled Group means, for a Borrower, all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control that, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. Conversion means shall have the meaning assigned to that term in Section 2.4. Conversion Date shall mean the date on which a Conversion occurs. Conversion Notice shall have the meaning assigned to that term in Section 2.4. Curative Measure shall mean the repairs, renovations and replacements recommended for immediate action for an Apartment Community in an Inspection Report. Debt of a Person at a date means, without duplication, - all obligations of the Person for borrowed money, including all obligations of the Person evidenced by bonds, debentures, notes or other similar instruments, - all obligations of the Person to pay the deferred purchase price of property or services, except trade accounts payable and deferred compensation arising in the ordinary course of business, - all obligations of the Person as lessee under capital leases, - all Debt of others secured by a Lien on assets of the Person, whether or not the Debt is assumed by the Person, - all Debt of others Guaranteed by the Person, - all letters of credit, banker's acceptances, swap transactions and similar hedge agreements, and - all Debt of any partnership for which such Person is a general partner. Default means a condition or event that constitutes an event of default hereunder or that with the giving of notice or lapse of time or both would, unless cured or waived, become a Default, as more specifically set forth in Section 7. Development Project is a real property which is being developed into, or upon which improvements are being constructed to enable it to become, an Apartment Community. EBITDA shall mean, on a consolidated basis, earnings before interest, taxes, depreciation and amortization, calculated in accordance with GAAP. Environmental Laws means all applicable local, state or federal laws, rules or regulations pertaining to environmental regulation, contamination or cleanup, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976 or any state lien or superlien or environmental cleanup statutes. ERISA means the Employee Retirement Income Security Act of 1974. Eurocurrency Reserve Requirements for any day means the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) established by the Federal Reserve Board and any other banking authority to which a Lender is subject and applicable to 'eurocurrency liabilities', as such term is defined in Regulation D of the Federal Reserve Board, or any similar category of assets of liabilities relating to eurocurrency fundings. Eurocurrency Reserve Requirements shall be adjusted automatically on and as of the effective date of any change in such reserve percentage. Eurodollar Borrowing means a Borrowing bearing interest at the Eurodollar Rate. Eurodollar Loan means a Loan bearing interest at the Eurodollar Rate. Eurodollar Rate shall mean the LIBOR Rate, plus the applicable Margin. Existing Letters of Credit means (a) that certain letter of credit issued by AmSouth Bank, dated July 7, 1997, in an amount not to exceed in the aggregate $7,230,903.00, bearing Letter of Credit No. S314065; (b) that certain letter of credit issued by AmSouth Bank, dated May 6, 1996, in an amount not to exceed in the aggregate $168,000, bearing Letter of Credit No. S312398; (c) that certain letter of credit issued by AmSouth Bank, dated January 29, 1997, in an amount not to exceed in the aggregate $455,778.21, bearing Letter of Credit No. S312294; (d) that certain letter of credit issued by AmSouth Bank, dated December 19, 1997, in an amount not to exceed in the aggregate $6,057,206, bearing Letter of Credit No. S314660; (e) that certain letter of credit issued by AmSouth Bank, dated January 15, 1998, in an amount not to exceed in the aggregate $11,005,940, bearing Letter of Credit No. S314760; and (f) any and all replacements and substitutions of any of the letters of credit discussed in (a), (b), (c), (d) and (e). Expenses of a Person means the Person's reasonable out of pocket expenses (including reasonable fees and expenses of the Person's outside counsel) and reasonably allocable expenses of counsel who are employees of the Person. Fair Market Value shall be determined quarterly, on a "Net Operating Income" basis, not later than the twenty second (22nd) day of each calendar quarter, but as of the last day of the immediately preceding calendar quarter, from the Effective Date until the Termination Date of the Loans, by dividing the prior calendar quarter's annualized Adjusted NOI of Stabilized Properties subject to Mortgages by 9.5%. Federal Funds Rate for a day means the rate per annum (rounded upwards, if necessary, to the nearest 0.01%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on the day, as published by the Federal Reserve Bank of New York on the Business Day following that day, provided that: - if the day is not a Business Day, the Federal Funds Rate for the day shall be the rate on such transactions on the preceding Business Day as so published on the following Business Day, and - if no such rate is so published on the following Business Day, the Federal Funds Rate for the day shall be the average rate on such transaction quoted to the Administrative Agent on the day by three federal funds brokers of recognized standing selected by the Administrative Agent. Federal Reserve Board means the Board of Governors of the Federal Reserve System. Fees shall mean, collectively, the fees described in Section 1.11(a) through (e), both inclusive. Funds from Operations has the meaning assigned in Section 6.7. GAAP means generally accepted accounting principles in the United States of America in effect from time to time, consistently applied. Hazardous Substances shall mean and include all hazardous and toxic substances, wastes or materials, any pollutants or contaminants (including, without limitation, asbestos and raw materials which include hazardous constituents), or any other similar substances or materials which are included under or regulated by any applicable Environmental Laws. Initial Properties shall mean the Properties listed on Schedule 2. Inspection Report shall mean the written report commissioned by the Administrative Agent as part of the due diligence process for determining whether an Apartment Complex may become a Mortgaged Property. Interest Period shall have the meaning assigned to that term in Section 1.12. Lenders shall have the meaning assigned to such term in the introductory paragraph of this Agreement. Letter(s) of Credit shall have the meaning assigned to that term in Section 1.8. Letter of Credit Facility shall mean the portion of the Aggregate Commitment that may be utilized for the issuance of Letters of Credit, not to exceed $60,000,000 at any one time. LIBOR for an Interest Period means - the interest rate per annum for deposits in U.S. dollars for a maturity most nearly comparable to the Interest Period that appears on page 3750 (or a successor page) of the Dow Jones Telerate Screen as of 11 a.m., London time, on the second Business Day before the first day of the Interest Period, or - if such rate does not so appear on the Dow Jones Telerate Screen, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the rate at which U.S. dollar deposits approximately equal in principal amount to the Administrative Agent's portion of such Borrowing and for a maturity comparable to the Interest Period, are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11 a.m., London time, on the second Business Day before the first day of the Interest Period. Lien means, for an asset, a mortgage, lien (including without limitation statutory liens), pledge, charge, security interest or encumbrance of any kind in respect of the asset, including the interest of a vendor or lessor under a conditional sales agreement, capital lease or other title retention agreement, or any preferential arrangement of any kind. Loan Documents shall mean this Agreement, the Notes, the Mortgages, any other instrument or document at any time evidencing or securing the Loans, and any other instrument or document executed by the Borrowers or any Subsidiary with or in favor of the Administrative Agent or the Lenders in connection with the Loans. Loans shall have the meaning assigned to such term in Section 1.1, and, individually, a Loan. MAAC shall have the meaning given to such term in the introductory paragraph of this Agreement. Management Fees means, with respect to each Apartment Community for any period, an amount equal to five percent (5%) of the aggregate rent due and payable for such period under leases with tenants at such Apartment Community. Margin shall mean (a) from the date hereof through June 30, 1998, one and one-quarter percent (1.25%) and (b) commencing July 1, 1998, but, subject to Section 1.13(e), continuing thereafter until the Loans are paid in full, two percent (2%). Margin Stock means 'margin stock' as defined in Regulation U of the Federal Reserve Board. Material Officer shall have the meaning assigned to such term in Section 7.1(l). Maturity Date means November 24, 1999. Mid-America shall have the meaning given to such term in the introductory paragraph of this Agreement. Moody's shall mean Moody's Investors Service, Inc. Mortgage shall mean any deed of trust, mortgage, deed to secure debt, or other similar lien instrument, executed by the Borrowers or a Subsidiary for the purpose of securing the Loans, and constituting a valid first lien upon or security title in an Apartment Community. Mortgaged Property shall mean the Stabilized Properties and Development Projects subject to the lien of a Mortgage. Net Operating Income or NOI means, with respect to any Apartment Community for the most recent two calendar quarters, "actual property rental and other income" (as determined by GAAP) attributable to such Apartment Community accruing for such period, minus the amount of all expenses (as determined in accordance with GAAP) incurred in connection with and directly attributable to the ownership and operations of such Apartment Community for such period, including, without limitation, Management Fees and amounts accrued for the payment of real estate taxes and insurance premiums, but excluding interest expense or other debt service charges and any non-cash charges such as depreciation or amortization of financing costs. In calculating NOI attributable to any Apartment Community first acquired or opened by either Borrower during a quarter, "actual property rental and other income" and expenses shall be adjusted for the purposes of this definition to reflect the full amount of "actual property rental and other income" and expenses that would have been attributable to such Apartment Community if it had been owned or opened for the full quarter. Net Operating Loss for any period shall mean the amount by which expenses exceed income, all determined in accordance with GAAP. Net Worth or Tangible Net Worth means the sum of consolidated shareholders' equity and minority interests in MAAC, determined in accordance with GAAP, reduced by the amount of any intangible assets of MAAC, determined in accordance with GAAP. Notes shall have the meaning assigned to such term in Section 1.4. Notice Addresses shall have the meaning assigned in Section 10.1. Obligor shall mean either Borrower or any Subsidiary granting a Mortgage to secure the Loans. Office of a Lender means the Lender's office designated as its office and located at the address set forth on Schedule 3, or such other office as the Lender designates as its office by notice to the Borrowers and the Administrative Agent. Participant shall have the meaning assigned to such term in Section 10.7(b). PBGC means the Pension Benefit Guaranty Corporation. Pension Plan at a time means an employee pension benefit plan that is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and is either (a) maintained by a member of the Controlled Group for employees of a member of the Controlled Group or (b) maintained pursuant to a collective bargaining agreement or other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. Person means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. Prime Rate means the per annum rate of interest publicly announced by the Administrative Agent as its Prime Rate at its principal office in Birmingham, Alabama. Each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. Project Budget means the total cost of a particular phase of a Development Project, not to exceed $20,000,000 for any one such phase of a Development Project. Proportionate Share means the respective pro rata interests of the Lenders in the Aggregate Commitment and in the Loans. Register shall have the meaning assigned to such term in Section 10.7(f). Regulatory Action means the adoption of an applicable law, rule or regulation, or a change therein, or a change in the interpretation or administration thereof by a governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by a Lender (or its Office) with a request or directive (whether or not having the force of law) of the authority, central bank or comparable agency. Related Person shall mean any Person (i) which now or hereafter directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with either Borrower, or (ii) which now or hereafter beneficially owns or holds ten percent (10%) or more of the partnership interests of Mid-America, or ten percent (10%) or more of the capital stock of MAAC, or (iii) ten percent (10%) or more of the capital stock, partnership interest or other form of ownership interest of which is beneficially owned or held by either Borrower. For the purposes hereof, "control" shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting stock or interests, by contract or otherwise. Responsible Officer shall have the meaning ascribed to that term in Section 1.7 hereof. S&P means Standard & Poor's Corporation or a successor. Stabilized Property shall mean an Apartment Community (a) for which a Certificate of Occupancy has been issued for the entire Apartment Community, or the Borrowers shall furnish satisfactory proof to the effect that the improvements for the entire Apartment Community have been completed and that the local government having jurisdiction does not issue a Certificate of Occupancy; and (b) which has achieved an occupancy rate of at least eighty percent (80%) for at least the immediately preceding two (2) consecutive months. Subsidiary means a corporation, partnership or other legal entity, the voting interest of which is one hundred percent (100%) directly or indirectly owned by either MAAC and/or Mid-America. Subsidiary Guaranty means the guaranty agreement executed or to be executed by each Subsidiary executing a Mortgage, in the form attached hereto as Exhibit H. Swing Line Facility shall have the meaning assigned to such term in Section 1.7. Swing Line Facility Note shall mean that certain promissory note executed by the Borrowers in the principal amount of $6,000,000, evidencing the Swing Line Facility. Tax includes any present or future tax, assessment or governmental charge or levy. Tax Form shall have the meaning assigned to that term in Section 9.6. Termination Date shall mean the earlier of (a) the Maturity Date or (b) the date as of which the Borrowers shall have terminated the Lenders' commitment under the provisions of Section 1.15 hereof, or (c) the Lenders have terminated this Agreement under the provisions of Section 7 hereof. Total Annualized Debt Service on Indebtedness shall mean for any period the aggregate amount of principal and interest payments including capitalized interest for construction purposes due for such period upon Debt, but excluding balloon payments. Total Annualized Fixed Charges shall mean for any period the aggregate amount of preferred stock distributions, principal, and interest (including capitalized interest for Development Projects) due for such period upon Debt, but excluding balloon payments. Total Development and Joint Venture Investment shall mean the aggregate from time to time of (i) a Borrower's expenditures with respect to any Apartment Community for land acquisition, development and construction costs until a Certificate of Occupancy is received for such entire Apartment Community (or, if no Certificate of Occupancy is available from the local governmental authority having jurisdiction until all construction of the entire Apartment Community has been completed), plus (ii) the amount of funds or other assets invested by a Borrower in any joint venture arrangement with any Person, whether or not a Related Person. Total Liabilities shall mean the aggregate amount of all liabilities of both Borrowers, from time to time outstanding, calculated on a consolidated basis, in accordance with GAAP, applied on a consistent basis. (For the purposes hereof, with respect to indebtednesses of any joint venture in which a Borrower is a party, such Borrower's pro rata share of the joint venture's liabilities shall be considered a liability of such Borrower, if such joint venture liability is non-recourse; but if such joint venture liability is a recourse obligation, the total amount of such joint venture liability shall be considered a liability of the Borrower.) Total Market Value of Assets shall mean, for any calendar quarter, the EBITDA for the most recent two (2) calendar quarters, multiplied by the integer two (2) (thereby converting the calendar quarter's EBITDA to an annualized amount), and then multiplying the result so obtained by the integer ten (10). Two-Thirds of the Lenders means Lenders having Commitments aggregating at least two-thirds of the Aggregate Commitment except that if the Borrowers' Borrowing Rights have terminated or for purposes of Section 7.2 (Action on Event of Default), Two-Thirds of the Lenders means Lenders having two thirds of the aggregate unpaid principal amount of all Loans to the Borrowers. Unfunded Amount shall have the meaning assigned to such term in Section 2.3. Unfunded Vested Liabilities for a Pension Plan at a time means the amount (if any) by which (i) the present value of all vested nonforfeitable benefits under the Pension Plan exceeds (ii) the fair market value of all Pension Plan assets allocable to such benefits, all determined as of the then most recent valuation date for the Pension Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Pension Plan under Title IV of ERISA. Withdrawal Liability means liability to a multiemployer plan as a result of a complete or partial withdrawal from the multiemployer plan, as such terms are defined in Part I of Subtitle E of ERISA. Work Completed means the extent to which construction has been completed on a Development Project at the point of determination. 11.2. Accounting terms and determinations Unless otherwise stated, all accounting terms used in this Agreement shall be interpreted, all accounting determinations under this Agreement shall be made and all financial statements of a Borrower required to be delivered under this Agreement shall be prepared in accordance with GAAP. 11.3. Miscellaneous usages In this Agreement, unless otherwise stated or the context otherwise clearly requires, the following usages apply: time periods In computing periods from a specified date to a later specified date, the words 'from' and 'commencing on' (and the like) mean 'from and including,' and the words 'to,' 'until' and 'ending on'( and the like) mean 'to but excluding.' when action may be taken Any action permitted to be taken under this Agreement may be taken at any time and from time to time. Birmingham, Alabama time All indications of time of day shall mean the time then in effect in Birmingham, Alabama. 'including'; 'or' 'Including' means 'including, but not limited to.' 'A or B' means 'A or B or both.' statutes and regulations References to a statute include all regulations promulgated under or implementing the statute, as in effect at the relevant time. agreements References to an agreement (including this Agreement) shall refer to the agreement as amended at the relevant time. governmental agencies References to any governmental or quasi-governmental agency or authority shall include any successor agency or authority. section references References to numbered sections in this Agreement shall refer to all included sections. For example, references to Section 6 shall also refer to Sections 6.1, 6.1(a), etc. other defined terms Other defined terms are contained within the body of this Agreement. List of Schedules Schedule 1 List of Lenders and Commitments Schedule 2 Initial Properties Schedule 3 Notice Addresses Schedule 4 Subsidiaries and Ownership List of Exhibits Exhibit A Notes (1.4) Exhibit B Swingline Request (1.7) Exhibit C Borrowing Notice (2.1) Exhibit D Conversion Notice (2.4) Exhibit E Attorney Opinion (3.1) Exhibit F Borrowing Base Certificate (5.1) Exhibit G Assignment (9.8) Exhibit H Subsidiary Guaranty Exhibit I Florida Restated Notes Exhibit J Compliance Certificate Signature page to Revolving Credit Agreement MID-AMERICA APARTMENT COMMUNITIES, INC. By /s/ Simon R.C. Wadsworth Name Simon R.C. Wadsworth Title CFO MID-AMERICA APARTMENTS, L.P. By Mid-America Apartments Communities, Inc. Its Sole General Partner By /s/ Simon R.C. Wadsworth Name Simon R.C. Wadsworth Title CFO Signature page to Revolving Credit Agreement AMSOUTH BANK, in its individual capacity as Lender and as Administrative Agent By____/s/ Lawrence Clark Name___Lawrence Clark Title__VP Signature page to Revolving Credit Agreement HIBERNIA NATIONAL BANK By____/s/ Susan Robinson Name______Susan Robinson Title_____Vice President Signature page to Revolving Credit Agreement COLUMBUS BANK & TRUST COMPANY By____/s/ Jon C. Dodds Name______Jon C. Dodds Title_____Sr. Vice President Signature page to Revolving Credit Agreement COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY By_____/s/ Harry Yergey Name Harry Yergey Title__Senior Vice President By_____/s/ Eric Kagerer Name___Eric Kagerer Title__Vice President Signature page to Revolving Credit Agreement PNC BANK, NATIONAL ASSOCIATION By /s/ Lee K. Zoller Name Lee K. Zoller Title Assistant Vice President Signature page to Revolving Credit Agreement FIRST TENNESSEE BANK, N.A. By /s/ Rick Neal Name Rick Neal Title SVP Signature page to Revolving Credit Agreement NATIONAL BANK OF COMMERCE By /s/ Billy Frank Name Billy Frank Title Assistant Vice President Signature page to Revolving Credit Agreement MELLON BANK, N.A. By /s/ Wayne P. Robertson Name Wayne P. Robertson Title Vice President SCHEDULE 1 List of Lenders Commitments: Percentage: AmSouth Bank $37,000,000 18.5% Hibernia National Bank 28,000,000 14.0% Columbus Bank & Trust Company 15,000,000 7.5% First Tennessee Bank, N.A. 20,000,000 10.0% Commerzbank 24,000,000 12.0% Aktiengesellschaft, Atlanta Agency PNC Bank, National Association 28,000,000 14.0% National Bank of Commerce 20,000,000 10.0% Mellon Bank, N.A. 28,000,000 14.0% _____________ ______ TOTAL $200,000,000 100.0% SCHEDULE 2 [List of Initial Properties] Availability Property Advance Rate as of 3/20/98 I. Stabilized Properties: 1. Paddock Club Huntsville (AL) 60% 4,980,000.00 2. Anatole (FL) 60% 5,106,000.00 3. Whisperwood (GA) 60% 13,980,000.00 4. Whisperwood Spa I (GA) 60% 9,060,000.00 5. Woods (TX) 60% 6,960,000.00 6. Township (VA) 60% 6,210,000.00 7. Paddock Club Brandon I (FL) 60% 12,600,000.00 8. Paddock Club Greenville (SC) 60% 7,680,000.00 9. Paddock Club Columbia I (SC) 60% 6,240,000.00 10. Paddock Club Columbia II (SC) 60% 4,800,000.00 11. Paddock Club Tallahassee (FL) 60% 5,700,000.00 12. Reflection Pointe (MS) 60% 7,830,000.00 13. Paddock Park Ocala II (FL) 54.5% 7,957,000.00 14. Colony at Southpark (SC) 60% 4,500,000.00 15. Walden Run (GA) 60% 8,259,000.00 16. Lane at Towne Crossing (TX) 60% 6,840,000.00 II. Development Projects: 1. Paddock Club 50% of cost 2,553,832.00 Huntsville II (AL) 2. Whisperwood Spa II (GA) 50% of cost 3,153,809.00 3. Paddock Club Gainesville 50% of cost 96,492.00 (FL) 4. Paddock Club Brandon II 50% of cost 0.00 (FL) 5. Paddock Club Mandarin 50% of cost 6,306,681.00 (FL) _______________ TOTAL BORROWING BASE $130,812,814.00 SCHEDULE 3 [Notice Addresses] AmSouth Bank Real Estate Department 9th Floor AmSouth/Sonat Building 1900 5th Avenue North Birmingham, Alabama 35203 Attention: Mr. Lawrence B. Clark Hibernia National Bank 313 Carondolet Street Suite 1400 New Orleans, Louisiana 70130 Attention: Edward "Skip" Santos Columbus Bank & Trust Company Real Estate Lending/Main Office 4th Floor 1148 Broadway Columbus, Georgia 31902 Attention: Mr. Jon C. Dodds First Tennessee Bank, N.A. 1st Floor-Real Estate 165 Madison Avenue Memphis, Tennessee 38103 Attention: Ms. Jennifer Andrews Commerzbank Aktiengesellschaft, Atlanta Agency Promenade Two, Suite 3500 Atlanta, Georgia 30309 Attention: Mr. Eric Kagerer PNC Bank, N.A. 500 West Jefferson Street, Suite 1200 Louisville, Kentucky 40202 Attention: Mr. Lee K. Zoller National Bank of Commerce 7770 Poplar Avenue Suite 105 Germantown, Tennessee 38138 Attention: Mr. Billy Frank Mellon Bank, N.A. One Mellon Bank Center Suite 2915 Pittsburgh, Pennsylvania 15258 Attention: Mr. Wayne Robertson Mid-America Apartment Communities, Inc. 6584 Poplar Suite 340 Memphis, Tennessee 38138 Attention: Mr. Simon R.C. Wadsworth Mid-America Apartments, L.P. 6584 Poplar Suite 340 Memphis, Tennessee 38138 Attention: Mr. Simon R.C. Wadsworth SCHEDULE 4 [Subsidiaries and Ownership] Paddock Club Huntsville, A Limited Partnership, a Georgia limited partnership Paddock Club Tallahassee, A Limited Partnership, a Georgia limited partnership Paddock Club Brandon, A Limited Partnership, a Georgia limited partnership Paddock Park Ocala II, A Limited Partnership, a Georgia limited partnership Whisperwood Associates, A Limited Partnership, a Georgia limited partnership Whisperwood Spa & Club, A Limited Partnership, a Georgia limited partnership Paddock Club Greenville, A Limited Partnership, a Georgia limited partnership Paddock Club Wildewood, A Limited Partnership, a Georgia limited partnership Paddock Club Columbia Phase II, A Limited Partnership, a Georgia limited partnership Mid-America Apartments of Texas, L.P., a Texas limited partnership EXHIBIT A NOTE Birmingham, Alabama _______________, 1998 For value received, Mid-America Apartment Communities, Inc., a Tennessee corporation, and Mid-America Apartments, L.P., a Tennessee limited partnership (jointly, the "Borrowers"), jointly and severally promise to pay to the order of _____________________, a banking association (the "Lender"), for the account of its Lending Office, the principal sum of _______________ Million and No/100 Dollars ($__,000,000.00), or such lesser amount as shall equal the unpaid principal amount of all Loans made by the Lender to the Borrowers pursuant to the Credit Agreement referred to below, on the dates and in the amounts provided in the Credit Agreement. The Borrowers jointly and severally promise to pay interest on the unpaid principal amount of this Note on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States of America in Federal or other immediately available funds at the office of AmSouth Bank, 1900 5th Avenue North, Birmingham, Alabama, 35203, or such other address as may be specified from time to time pursuant to the Credit Agreement. All Loans made by the Lender, the respective maturities thereof, the interest rates from time to time applicable thereto, and all repayments of the principal thereof shall be recorded by the Lender and, prior to any transfer hereof, endorsed by the Lender on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the joint and several obligations of the Borrowers hereunder or under the Credit Agreement. The books and records of the Administrative Agent shall be prima facie evidence of all sums due Lender. This Note is one of the Notes evidencing Loans referred to in, and is entitled to the benefits of, the Revolving Credit Agreement (Amended and Restated) dated as of March 16, 1998, among the Borrowers, the Lenders listed on the signature pages thereof and AmSouth Bank, as Administrative Agent (as the same may be amended, supplemented and modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the optional and mandatory prepayment and the repayment hereof and the acceleration of the maturity hereof, as well as the obligation of the Borrowers to pay all costs of collection, including reasonable attorneys fees, in the event this Note is collected by law or through an attorney at law. Each Borrower hereby waives presentment, demand, protest, notice of demand, protest and nonpayment and any other notice required by law relative hereto, except to the extent as otherwise may be expressly provided for in the Credit Agreement. This Note shall be governed by and construed in accordance with the laws of the State of Alabama. IN WITNESS WHEREOF, each Borrower has caused this Note to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. MID-AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation By______________________________ Its___________________________ MID-AMERICA APARTMENTS, L.P., a Tennessee limited partnership By Mid-America Apartment Communities, Inc. Its Sole General Partner By______________________________ Its___________________________ LOANS AND PAYMENTS OF PRINCIPAL Base Rate or Amount of Euro-Dollar Amount of Principal Maturity Notation Date Loan Loan Repaid Date Made By _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ EXHIBIT B SWING LINE REQUEST [Date]______________________ AmSouth Bank, as Administrative Agent RE: Revolving Credit Agreement dated as of March 16, 1998, between Mid-America Apartment Communities, Inc., Mid-America Apartments, L.P., the Lenders parties thereto, and AmSouth Bank, as Administrative Agent (as amended, supplemented or modified from time to time, the "Credit Agreement"; capitalized terms used but not defined in this Request have the meanings given them in the Credit Agreement) Ladies and Gentlemen: Pursuant to Section 1.7 of the Credit Agreement, the undersigned Borrowers request an Advance under the Swing Line Note as follows: Date of Borrowing _____________ ___, 199____; and Aggregate principal amount $_____________. The net proceeds of the Borrowing are to be [deposited in our account with you, No. ] [wire to [bank], A.B.A. # , reference ]. Any questions regarding this notice should be directed to [contact Person]. MID-AMERICA APARTMENT COMMUNITIES, INC. By:__________________________ Title:______________________ By:__________________________ Title:______________________ MID-AMERICA APARTMENTS, L.P. By: Mid-America Apartment Communities, Inc. Title: The Sole General Partner By:__________________________ Title:______________________ By:__________________________ Title:______________________ EXHIBIT C BORROWING NOTICE [Date] AmSouth Bank, as Administrative Agent RE: Revolving Credit Agreement dated as of March 16, 1998, between Mid-America Apartment Communities, Inc., Mid-America Apartments, L.P., the Lenders parties thereto, and AmSouth Bank, as Administrative Agent (as amended, supplemented or modified from time to time, the "Credit Agreement"; capitalized terms used but not defined in this Notice have the meanings given them in the Credit Agreement) Ladies and Gentlemen: Pursuant to Section 2.1 of the Credit Agreement, the undersigned Borrowers request a Borrowing, as follows: Date of Borrowing: _____________ ___, 199____; Aggregate principal amount: $_____________; Interest Rate (check one): __ (a) Eurodollar Rate; or __ (b) Base Rate (If Base Rate is selected, accrued interest will be payable on the first day of each month.) Interest Period (if Eurodollar Rate is selected): circle one: 30 or 60 days. The Borrowing [is/is not] to be utilized for a Development Project. If the Borrowing is related to a Development Project, such Development Project is known as ______________________________________, and evidence of the Work Completed is attached hereto. The net proceeds of the Borrowing are to be [deposited in our account with you, No. ] [wire to [bank], A.B.A. # , reference ]. Any questions regarding this Notice should be directed to [contact person]. MID-AMERICA APARTMENT COMMUNITIES, INC. By:_____________________________________ Title:_________________________________ By:_____________________________________ Title:_________________________________ MID-AMERICA APARTMENTS, L.P. By: Mid-America Apartment Communities, Inc. Title: The Sole General Partner By:_____________________________________ Title:_________________________________ By:_____________________________________ Title:_________________________________ EXHIBIT D CONVERSION NOTICE [Date] AmSouth Bank, as Administrative Agent RE: Revolving Credit Agreement dated as of March 16, 1998, between Mid-America Apartment Communities, Inc., Mid-America Apartments, L.P., the Lenders parties thereto, and AmSouth Bank, as Administrative Agent (as amended, modified or supplemented from time to time, the "Credit Agreement"; capitalized terms used but not defined in this Notice have the meanings given them in the Credit Agreement) Ladies and Gentlemen: Pursuant to Section 2.4 of the Credit Agreement, the undersigned Borrowers request a Conversion of certain Borrowings, as follows: Conversion date: Borrowings to be converted: Borrowing or Conversion date: _____________ Type: _____________ Interest Period: _____________ [Repeat as necessary] Aggregate unpaid principal amount of Borrowings to be converted: $ To be converted into the following Borrowings: Type: _____________ Principal amount: _____________ Interest Period: _____________ [Repeat as necessary] Any questions regarding this Notice should be directed to [contact person]. MID-AMERICA APARTMENT COMMUNITIES, INC. By: Title: MID-AMERICA APARTMENTS, L.P. By: Mid-America Apartment Communities, Inc. Title: The Sole General Partner By: Title: EXHIBIT E FORM OF OPINION OF COUNSEL TO BORROWERS _______________, 1998 To the Lenders and the Administrative Agent referred to below c/o AmSouth Bank, as Administrative Agent Ladies and Gentlemen: I am Counsel for Mid-America Apartment Communities, Inc., a Tennessee corporation ("MAAC") and Mid-America Apartments, L.P., a Tennessee limited partnership ("Mid-America") (jointly, the "Borrowers") and have acted as counsel for the Borrowers in connection with the Revolving Credit Agreement dated as of ________ ___, 1998 (the "Credit Agreement") between the Borrowers, the Lenders parties thereto, and AmSouth Bank, as Administrative Agent. Terms defined in the Credit Agreements are used herein as therein defined. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I have assumed the due execution and delivery of the Credit Agreement by the Administrative Agent and the Lenders. Upon the basis of the foregoing, I am of the opinion that: 1. MAAC is a real estate investment trust, duly incorporated, validly existing and in good standing under the laws of the State of Tennessee, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. Mid-America is a limited partnership duly incorporated, validly existing and in good standing under the laws of the State of Tennessee, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 3. [Same opinion as 1 for each corporate Subsidiary and same as 2 for each partnership Subsidiary, executing a Guaranty and a Mortgage on the closing date]. 4. The execution, delivery and performance by the Borrowers of the Credit Agreement and the Borrowings thereunder are within each Borrower's corporate or partnership, as the case may be, powers, have been duly authorized by all necessary corporate or partnership, as the case may be, action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation, by-laws or partnership agreement of either Borrower or of any material agreement, judgment, injunction, order, decree or other instrument binding upon either Borrower or result in the creation or imposition of any Lien on any asset of a Borrower or any of its Subsidiaries. 5. [Same opinion as 4 for each Subsidiary signing a Guaranty and a Mortgage on the closing date.] 6. The Notes and the Credit Agreement have been duly executed and delivered by each Borrower and constitute the valid and binding agreement of the Borrowers, enforceable in accordance with their respective terms except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general. The enforcement of the Borrowers' obligations under the Credit Agreement is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law.) 7. [Same opinion as 6 as relates to execution, delivery and enforceability of Guaranty and Mortgage by each Subsidiary.] 8. There is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, either Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of a decision that could materially adversely affect the business, consolidated financial position or consolidated results of operations of either Borrower and its consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of the Notes and the Credit Agreement. 9. The use of proceeds of any Loan under the Credit Agreement, in the manner contemplated in the Credit Agreement, will not entail a violation of any of the provisions of Regulation G, U, T or X of the Board of Governors of the Federal Reserve System. 10. Neither Borrower is an 'investment company' within the meaning of the Investment Company Act of 1940 or a 'holding company' within the meaning of the Public Utility Holding Company Act of 1935. I am admitted to practice law in the State of Tennessee, and in giving the opinions set forth above, I express no opinion as to any laws other than the federal laws of the United States Very truly yours, BORROWING BASE CERTIFICATE EXHIBIT F FOR THE ________________ Quarter 199__ PART I BORROWING BASE CALCULATION A. Stabilized Properties PROPERTY UNITS REVENUE/ NOI MGMNT CAP.EX. ADJSTD CAPPED AVAILABLE 1,000 FEE5% ($200/u) NOI AT 9.5% 60% B. Development Projects PROPERTY PROJECT COSTS TO AVAILABILITY TO BUDGET DATE DATE (AT 50%) BORROWING BASE ______________ $_____________ PART II Representations and Warranties; Events of Default 1) The representations and warranties set forth in the Agreement are true and correct as of the date of this Certificate. 2) No Event of Default, or event which would constitute an event of Default with the passage of time or giving of notice or both, has occurred under the Agreement, except as follows: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ Dated this _____ day of ______________, 199___. MID-AMERICA APARTMENT COMMUNITIES, INC. BY____________________________________ ITS___________________________________ MID-AMERICA APARTMENTS, L.P. BY MID-AMERICA APARTMENT COMMUNITIES, INC. ITS SOLE GENERAL PARTNER BY________________________________ ITS_______________________________ Exhibit G ASSIGNMENT AND ASSUMPTION AGREEMENT This Agreement is dated as of _________, 199_, between __________________ (the "Assignor"), ________________ (the "Assignee"), Mid-America Apartment Communities, Inc., Mid-America Apartments, L.P. (the "Borrowers"), and AmSouth Bank, as Administrative Agent (the "Administrative Agent"). R E C I T A L S A. This Assignment and Assumption Agreement (the "Agreement") relates to the Revolving Credit Agreement dated as of March 16, 1998, between the Borrowers, the Assignor and the other Lenders party thereto, as Lenders, and the Administrative Agent (as amended, modified and supplemented from time to time, the "Credit Agreement"). Except as otherwise provided herein, terms used in this Agreement shall have the meanings given them in the Credit Agreement. B. The Assignor is obligated under the Credit Agreement to make Loans to the Borrowers in an aggregate unpaid principal amount not to exceed $[_______________]. C. At the date of this Agreement, the aggregate unpaid principal amount of the Assignor's Loans to the Borrowers is $[_____________]. D. The Assignor proposes to assign to the Assignee all of the Assignor's rights under the Credit Agreement in respect of $[_______________] of its Commitment (the "Assigned Commitment Amount") together with a corresponding portion of its outstanding Loans, and the Assignee proposes to accept assignment of such rights and assume the Assignor's corresponding obligations on such terms. A G R E E M E N T The parties, intending to be legally bound, agree as follows: 1. Assignment. The Assignor hereby assigns and sells to the Assignee all of the Assignor's rights under the Credit Agreement to the extent of the Assigned Commitment Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the Assignor's obligations under the Credit Agreement to the extent of the Assigned Commitment Amount, including the purchase from the Assignor of the corresponding portion of the unpaid principal amount of the Loans made by the Assignor. Upon the execution and delivery of this Agreement by the parties and the payment of the amounts specified in Section 2 required to be paid on the date of this Agreement, as of [effective date1/: (i) the Assignee shall succeed to the rights and be obligated to perform the obligations of a Lender under the Credit Agreement with a Commitment equal to the Assigned Commitment Amount; and (ii) the Commitment of the Assignor shall be reduced by a like amount [like amounts] and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for in this Agreement shall be without recourse to the Assignor. 2. Payments. As consideration for the assignment and sale effected in paragraph 1 above, the Assignee shall pay the Assignor on the date(s) and in the amount(s) previously agreed between them. Facility Fees accrued to but not including the date of this Agreement in respect of the Assigned Commitment Amount are for the account of the Assignor and such fees accruing from and including the date of this Agreement are for the account of the Assignee. If the Assignor or Assignee receives any amount under the Credit Agreement that is for the account of the other, it shall promptly pay such other party. 3. Consent of the Borrowers2/ and acknowledgment of the Administrative Agent. Pursuant to Section 10.7 of the Credit Agreement, each Borrower consents to, and the Administrative Agent acknowledges, the assignment and assumption provided in this Agreement. 4. Non-reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency or financial condition or statements of the Borrowers or the validity and enforceability of the obligations of the Borrowers under the Credit Agreement. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrowers. 5. Alabama law. This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama. 6. Counterparts. This Agreement may be executed in counterparts. [Assignor] By: Title: [Assignee] By: Title: [Borrowers' consent not required if Assignee is a Lender] The undersigned consent to the foregoing assignment: MID-AMERICA APARTMENT COMMUNITIES, INC. By: Title: By: Title: MID-AMERICA APARTMENTS, L.P. By: Mid-America Apartment Communities, Inc. Title: The Sole General Partner By: Title: By: Title: EXHIBIT H GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (this "Guaranty"), dated as of ____________, 199_ (this "Guaranty"), is made by __________________________, a ____________ (the "Guarantor"), of the obligations of Mid-America Apartment Communities, Inc., a Tennessee corporation, and Mid-America Apartments, L.P., a Tennessee limited partnership (jointly, the "Borrowers"), under the Credit Agreement (defined below) among the Borrowers, AmSouth Bank, as Administrative Agent (the "Administrative Agent"), and the lenders parties to the Credit Agreement (singly, a "Lender" and collectively, the "Lenders"). BACKGROUND 1. The Borrower, the Administrative Agent, and the Lenders have entered into a Revolving Credit Agreement, dated as of March 16, 1998 (said Credit Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement"). The capitalized terms not otherwise defined herein have the meanings specified in the Credit Agreement. 2. Pursuant to the Credit Agreement, the Borrowers may, subject to the terms of the Credit Agreement, request that the Lenders make Advances. 3. It is a condition precedent to the obligation of the Lenders to make such Advances that the Guarantor guarantee repayment thereof upon the terms and conditions set forth herein. 4. The Guarantor is a Subsidiary of one of the Borrowers and the Borrowers and the Guarantor are members of the same consolidated group of companies and partnerships and are engaged in related businesses. 5. The partners, members, or board of directors, as applicable, of the Guarantor have determined that (i) the execution, delivery, and performance of this Guaranty is necessary and convenient to the conduct, promotion, and attainment of the Guarantor's business and (ii) the Advances may reasonably be expected to benefit, directly or indirectly the Guarantor. 6. The Guarantor desires to induce the Lenders to make such Advances. A G R E E M E N T NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make Advances under the Credit Agreement, the Guarantor hereby agrees as follows: 1. Guaranty (a) The Guarantor, jointly and severally with any and all other guarantors of the Advances and the Loans, hereby unconditionally guarantees the full and punctual payment of, and promises to pay, when due, whether at stated maturity, by mandatory prepayment, by acceleration or otherwise, the Loans, and agrees to pay any and all expenses (including counsel fees and expenses) incurred in enforcement or collection of all or any part thereof, whether such obligations, indebtedness and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several, and any rights under this Guaranty. (b) Anything contained in this Guaranty to the contrary notwithstanding, the obligations of the Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of the Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of the Guarantor in respect of intercompany indebtedness to the Borrowers or other Affiliates or Subsidiaries of the Borrowers to the extent that such indebtedness would be discharged in an amount equal to the amount paid by the Guarantor hereunder) and treating as assets, subject to Paragraph 4(a) hereof, to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of the Guarantor pursuant to (i) Applicable Law or (ii) any agreement providing for an equitable allocation among the Guarantor and other Affiliates or Subsidiaries of the Borrowers of obligations arising under guaranties by such parties. 2. Guaranty Absolute. The Guarantor guarantees that the Loans will be paid strictly in accordance with the terms of the Credit Agreement, the Notes, and the other Loan Documents, regardless of any Applicable Law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lenders with respect thereto; provided, however, nothing contained in this Guaranty shall require the Guarantor to make any payment under this Guaranty in violation of any Applicable Law, regulation or order now or hereafter in effect. The obligations and liabilities of the Guarantor hereunder are independent of the obligations of the Borrowers under the Credit Agreement and any Applicable Law. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (a) the taking or accepting of any other security or guaranty for any or all of the Loans, including any reduction or termination of the Commitments; (b) any increase, reduction or payment in full at any time or from time to time of any part of the Loans; (c) any lack of validity or enforceability of the Credit Agreement, the Notes, or any other Loan Documents or other agreement or instrument relating thereto, including but not limited by the unenforceability of all or any part of the Loans by reason of the fact that (i) the Loans and/or the interest paid or payable with respect thereto, exceeds the amount permitted by Applicable Law, (ii) the act of creating the Loans, or any part thereof, is ultra vires, (iii) the officers creating same acted in excess of their authority, or (iv) for any other reason; (d) any lack of corporate or partnership power of the Borrowers, as the case may be, or any other Person at any time liable for the payment of any or all of the Loans; (e) any applicable bankruptcy, reorganization, insolvency, receivership, liquidation, arrangement, conservatorship, moratorium, or similar laws, rules or regulations, or principles of equity affecting the enforcement of creditors's rights generally ("Debtor Relief Laws") involving the Borrowers, the Guarantor or any other Person obligated on any of the Loans; (f) any renewal, compromise, extension, acceleration or other change in the time, manner or place of payment of, or in any other term of, all or any of the Loans; any adjustment, indulgence, forbearance, or compromise that may be granted or given by any Lender or the Administrative Agent to the Borrowers, the Guarantor, or any Person at any time liable for the payment of any or all of the Loans; or any other modification, amendment, or waiver of or any consent to departure from the Credit Agreement, the Notes, or any other Loan Documents and other agreement or instrument relating thereto without notification of the Guarantor (the right to such notification being herein specifically waived by the Guarantor); (g) any exchange, release, sale, subordination, or non- perfection of any collateral or Lien therein or any lack of validity or enforceability or change in priority, destruction, reduction, or loss or impairment of value of any collateral or Lien therein; (h) any release or amendment or waiver of or consent to departure from any other guaranty for all or any of the Loans; (i) the failure by any Lender or the Administrative Agent to make any demand upon or to bring any legal, equitable, or other action against the Borrowers or any other Person (including without limitation any other guarantor), or the failure or delay by any Lender or the Administrative Agent to, or the manner in which any Lender or the Administrative Agent shall, proceed to exhaust rights against any direct or indirect security for the Loans; (j) the existence of any claim, defense, set-off, or other rights which the Borrowers or the Guarantor may have at any time against the Borrowers, the Lenders, or any guarantor, or any other Person, whether in connection with this Guaranty, the other Loan Documents, the transactions contemplated thereby, or any other transaction; (k) any failure of any Lender or the Administrative Agent to notify the Guarantor of any renewal, extension, or assignment of the Loans or any part thereof, or the release of any security, or of any other action taken or refrained from being taken by any Lender or the Administrative Agent, it being understood that the Lenders and the Administrative Agent shall not be required to give the Guarantor any notice of any kind under any circumstances whatsoever with respect to or in connection with the Loans; (l) any payment by the Borrowers to the Lenders or the Administrative Agent is held to constitute a preference under any Debtor Relief Law or if for any other reason the Lenders or the Administrative Agent is required to refund such payment or pay the amount thereof to another Person; or (m) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrowers, the Guarantor, any other guarantor or other Person liable on the Loans, including without limitation any defense by reason of any disability or other defense of the Borrowers, or the cessation from any cause whatsoever of the liability of the Borrowers, or any claim that the Guarantor's obligations hereunder exceed or are more burdensome than those of the Borrowers. This Guaranty shall continue to be effective or reinstated, as the case may be, if any time any payment of any of the Loans is rescinded or must otherwise be returned by any Lender or any other Person upon the insolvency, bankruptcy or reorganization of either Borrower, the Guarantor or otherwise, all as though such payment had not been made. 3. Waiver. To the extent not prohibited by Applicable Law, the Guarantor hereby waives: (a) promptness, protests, diligence, presentments, acceptance, performance, demands for performance, notices of nonperformance, notices of protests, notices of dishonor, notices of acceptance of this Guaranty and of the existence, creation or incurrence of new or additional indebtedness, and any of the events described in Paragraph 2 and of any other occurrence or matter with respect to any of the Loans, this Guaranty or any of the other Loan Documents; (b) any requirement that the Administrative Agent or any Lender protect, secure, perfect, or insure any Lien or security interest or any property subject thereto or exhaust any right or take any action against the Borrowers or any other Person or any collateral or pursue any other remedy in the Administrative Agent's or any Lender's power whatsoever; (c) any right to assert against the Administrative Agent or any Lender as a counterclaim, set-off or cross-claim, any counterclaim, set-off or claim which it may now or hereafter have against the Borrowers or either of them or other Person liable on the Loans; (d) any right to seek or enforce any remedy or right that the Administrative Agent or any Lender now has or may hereafter have against the Borrowers or either of them (to the extent permitted by Applicable Law); (e) any right to participate in any collateral or any right benefitting the Administrative Agent or the Lenders in respect of the Loans; and (f) any right by which it might be entitled to require suit on an accrued right of action in respect of any of the Loans or require suit against the Borrowers or either of them or any other Person. 4. Subrogation and Subordination. The Guarantor hereby irrevocably waives any claim or other rights which it may have or hereafter acquire against the Borrowers or either of them that arise from the existence, payment, performance or enforcement of the Guarantor's obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, any right to participate in any claim or remedy of any Lender against the Borrowers or either of them or any collateral which any Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statutes or common law, including without limitation, the right to take or receive from the Borrowers or either of them, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Guarantor in violation of the preceding sentence and the Loans shall not have been paid in full, such amount shall be deemed to have been paid to the Guarantor for the benefit of, and held in trust for the benefit of, the Lenders, and shall forthwith be paid to the Administrative Agent to be credited and applied upon the Loans, whether matured or unmatured, in accordance with the terms of the Credit Agreement. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waiver set forth in this Paragraph 4 is knowingly made in contemplation of such benefits. Notwithstanding anything to the contrary contained in this Paragraph 4, any waiver and release shall not be effective as to any such claim or entitlement or such subrogation and other rights that accrue after the indefeasible payment, performance and other satisfaction in full of the Loans, all other amounts payable under this Guaranty and termination of the Commitments. 5. Representations and Warranties. The Guarantor hereby represents and warrants as follows: (a) The Guarantor is a ___________________ duly organized, validly existing and in good standing under the laws of the State of _________; it has the power and authority to own its properties and assets and is in good standing and duly qualified to carry on its business in every jurisdiction wherein such qualification is necessary, including, without limitation, every state in which it owns an Apartment Community. (b) The execution, delivery and performance by the Guarantor of this Guaranty are within the Guarantor's corporate or partnership, as the case may be, powers, have been duly authorized by all necessary corporate or partnership, as the case may be, action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws or partnership agreement of the Guarantor or of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Guarantor or result in the creation or imposition of any Lien on any asset of the Guarantor. (c) There is no action, suit or proceeding pending against, or, to the knowledge of the Guarantor, threatened against or affecting, the Guarantor before any court or arbitrator or any governmental body, agency or official in which there is a reasonable probability of an adverse decision that would materially adversely affect the business, financial position or results of operations of the Guarantor or that in any manner draws into question the validity or enforceability of this Guaranty. (d) The Guarantor is not a party to, nor subject to, any agreement or instrument, including, without limitation, any partnership agreement, partnership restrictions, voting trust or shareholders' agreement, materially and adversely affecting its business, Apartment Communities, or other assets, operations or condition (financial or otherwise). (e) To the best of the Guarantor's knowledge, (a) except strictly in compliance with all applicable Environmental Laws, no Hazardous Substances are located upon or have been stored, processed or disposed of on or released or discharged (including ground water contamination) from any Apartment Community owned or leased by the Guarantor, and (b) no aboveground or underground storage tanks exist on any of the Apartment Communities owned or leased by the Guarantor. No private or governmental lien or judicial or administrative notice or action related to Hazardous Substances or other environmental matters has been filed against any Apartment Community owned or leased by the Guarantor. 6. Covenants. The Guarantor hereby expressly assumes, confirms, and agrees to perform, observe, and be bound by all conditions and covenants set forth in the Credit Agreement, to the extent applicable to it, as if it were a signatory thereto. The Guarantor further covenants and agrees (a) punctually and properly to perform all of the Guarantor's covenants and duties under any Mortgage or other Loan Documents; (b) from time to time promptly to furnish the Administrative Agent with any information or writings which the Administrative Agent may reasonably request concerning this Guaranty; and (c) to notify promptly the Administrative Agent of any claim, action, or proceeding affecting this Guaranty. 7. Amendments, Etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 8. Addresses for Notices. Unless otherwise provided herein, all notices, requests, consents and demands shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy to the respective addresses specified herein and to the attention of the individuals listed thereunder, or, as to any party, to such other addresses as may be designated by it in written notice to all other parties. All notices, requests, consents and demands hereunder shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy, or if mailed, effective on the earlier of actual receipt or three (3) days after being mailed by certified mail, return receipt requested, postage prepaid, addressed as aforesaid. 9. No Waiver; Remedies. No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder or under any of the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder or under any of the other Loan Documents preclude any other or further exercise thereof or the exercise of any other right. Neither the Administrative Agent nor any Lender shall be required to (a) prosecute collection or seek to enforce or resort to any remedies against the Borrowers or either of them or any other Person liable on any of the Loans, (b) join the Borrowers or either of them or any other Person liable on any of the Loans in any action in which Lender prosecutes collection or seeks to enforce or resort to any remedies against the Borrowers or either of them or other Person liable on any of the Loans, or (c) seek to enforce or resort to any remedies with respect to any Liens granted to (or benefitting, directly or indirectly) the Administrative Agent or any Lender by the Borrowers or either of them or any other Person liable on any of the Loans. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure or insure any of the Liens or the properties or interest in properties subject thereto. The remedies herein provided are cumulative and not exclusive of any remedies provided by Applicable Law. 10. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Guarantor against any and all of the obligations of the Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not such Lender shall have made any demand under this Guaranty. Each Lender agrees promptly to notify the Guarantor after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set off and application. The rights of each Lender under this Paragraph 10 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. 11. Continuing Guaranty; Transfer of Notes. This Guaranty is an irrevocable continuing guaranty of payment and shall (a) remain in full force and effect until termination of the Commitments and final payment in full (after the Maturity Date) of the Loans and all other amounts payable under this Guaranty, (b) be binding upon the Guarantor, its successors and assigns, and (c) inure to the benefit of and be enforceable by each Lender and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), to the extent permitted by Section 10.7 of the Credit Agreement, each Lender may assign or otherwise transfer its rights under the Credit Agreement, the Notes or any of the other Loan Documents or any interest therein to any Person, and such other Person shall thereupon become vested with all the rights or any interest therein, as appropriate, in respect thereof granted to the Lender herein or otherwise. 12. Information. The Guarantor acknowledges and agrees that it shall have the sole responsibility for obtaining from the Borrowers such information concerning each Borrower's financial condition or business operations as the Guarantor may require, and that neither the Administrative Agent nor any Lender has any duty at any time to disclose to any Guarantor any information relating to the business operations or financial conditions of the Borrowers. 13. GOVERNING LAW. THE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ALABAMA AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE GUARANTOR AGREES THAT THE STATE AND FEDERAL COURTS OF ALABAMA LOCATED IN BIRMINGHAM, ALABAMA, SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. 14. WAIVER OF JURY TRIAL. THE GUARANTOR, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THE CREDIT AGREEMENT. 15. Ratable Benefit. This Guaranty is for the ratable benefit of the Lenders, each of which shall share any proceeds of this Guaranty pursuant to the terms of the Credit Agreement. 16. Guarantor Insolvency. Should the Guarantor become insolvent, fail to pay its debts generally as they become due, voluntarily seek, consent to, or acquiesce in the benefits of any Debtor Relief Law or become a party to or be made the subject of any proceeding provided for by any Debtor Relief Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the right of any Lender granted hereunder, then, the obligations of the Guarantor under this Guaranty shall be, as between the Guarantor and such Lender, a fully-matured, due, and payable obligation of the Guarantor to such Lender (without regard to whether there is a Default or Event of Default under the Credit Agreement or whether any part of the Loans is then due and owing by the Borrowers to such Lender), payable in full by the Guarantor to such Lender upon demand, which shall be the estimated amount owing in respect of the contingent claim created hereunder. 17. ENTIRE AGREEMENT. THIS GUARANTY, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its duly authorized representative as of the date first above written. ___________________________________ By________________________________ Its______________________________ EXHIBIT I In order to derive the benefit of Florida law providing exemption from certain documentary stamp taxes and intangible taxes, the parties have agreed that the Notes (a) amend and restate in their entirety and renew those certain notes secured, inter alia, by Florida real property, issued by various borrowers to other lenders who have assigned their interest thereunder to the Administrative Agent (unless previously held by Mortgagee) for the benefit of the Lenders (the "Assigned Notes"), being more particularly described below, and (b) consolidate said Assigned Notes with the new and additional indebtedness represented by this Agreement. See page 2 of this Exhibit I for a description of the Assigned Notes. Table 1 to Exhibit "I" Property Original Original Date of Original Outstanding Obligor Obligee Note Principal Principal Amount of Balance of Note Note 1. Anatole Mid-America AmSouth Apartments Bank , L.P. 2. Paddock Paddock Club First Union June 4, $15,760,000 $15,607,570.65 Club Brandon, A National 1996 0.00 Brandon, Limited Bank of Phase I Georgia 3. Paddock Flournoy AmSouth July 15, $14,950,000 Club Development Bank 1997 Mandarin Company 4.Paddock Paddock Berkshire August 2, $8,600,000 $8,402,246.66 Club Club Mortgage 1990 Tallahassee Tallahassee, Finance Phase I A Limited (f/k/a Partnership Krupp Mortgage Corporation) EXHIBIT J TO REVOLVING CREDIT AGREEMENT CHIEF FINANCIAL OFFICER'S CERTIFICATE OF COVENANT COMPLIANCE In accordance with the requirements of the Revolving Credit Agreement (the "Loan Agreement") between Mid-America Apartment Communities, Inc., and Mid-America Apartments, L.P., and AmSouth Bank, as Administrative Agent, dated March 16, 1998 (the "Agreement"), I do hereby certify as follows (capitalized terms used in this certificate having the meanings defined for them in the Loan Agreement): 1. I am the Chief Financial Officer of the Borrower and am duly authorized to execute and deliver this Certificate. 2. On and as of the date hereof, the Borrower is in compliance with all the terms and provisions set forth in the Loan Agreement on its part to be observed and performed, and no Event of Default specified in Article Seven of the Loan Agreement, nor any event that upon notice or lapse of time or both would constitute such an Event of Default, exists. 3. The attached calculations are true and correct based on the Borrower's unaudited financial statement for the fiscal quarter ended ________, ____. Dated: ________________ _________________________ Simon R.C. Wadsworth Chief Financial Officer Mid-America Apartment Communities, Inc. Mid-America Apartment Communities Revolving Credit Agreement Debt Covenant Worksheet for Compliance Certificate Quarter Quarter Ending Ending Annualized _________ _________ __________ Total Liabilities EBITDA-MAA EBITDA-FDC EBITDA-Combined Total Market Value Total Liabilities/Total Market Value Total Development and JV Investment As % of Total Market Value Total Annualized Fixed Charges Preferred Dividend Principal (from below) Interest Total Annualized Fixed Charges EBITDA/ANNUALIZED FIXED CHARGES: Principal From Mac Schedule Westside Creek II FDC Total Principal Total Annualized Debt Service: Principal Interest Total Debt Service EBITDA/DEBT SERVICE Tangible Net Worth Equity Less Intangibles Tangible Net Worth AmSouth Properties only Adjusted NOI of Mortgaged Properties Assumed Debt Service Adjusted NOI/Assumed Debt Service Dividend Payments Common Dividend Payment Preferred Divident Payment Total Dividend Payment FFO FFO + Preferred Dividend Total Dividends/FFO+Preferred [Quarter] >2.00:1 Debt Service Ratio >1.75:1 Fixed Charge Ratio >1.0:1.0 Adjusted NOI Ratio >$470MM Net Worth <10% MVA Development & Construction Debt <90% FFO Dividend payout <60% Debt/Total Market Value of Assets _______________________________ 1/Not earlier than fifth Business Day after execution. 2/Consent not required if Assignee is a Lender. EX-10.10 12 EXHIBIT 10.10 NOTE PURCHASE AGREEMENT MID-AMERICA APARTMENTS, L.P. 6584 Poplar Avenue Memphis, TN 38138 MID-AMERICA APARTMENT COMMUNITIES, INC. 6584 Poplar Avenue Memphis, TN 38138 As of November 24, 1997 The Prudential Insurance Company of America c/o Prudential Capital Group One Ravinia Drive Suite 1400 Atlanta, Georgia 30346 Ladies and Gentlemen: The undersigned, Mid-America Apartments, L.P. (the "Partnership") and Mid-America Apartment Communities, Inc. (the "REIT"), hereby agree with you as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. The Partnership has authorized the issuance of its senior unsecured promissory notes in the aggregate principal amount of the Converted Loans, to be dated the date of issuance thereof, to mature on the Conversion Maturity Date, to bear interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the Converted Note Rate, and on overdue payments at the rate specified therein, and to be substantially in the form of Schedule 1A attached hereto. The term "Notes" as used herein shall include each such senior unsecured promissory note delivered pursuant to any provision of this Agreement and each such senior unsecured promissory note delivered in substitution or exchange for any other Note pursuant to any such provision. Other capitalized terms that are used herein are defined in Section 10 hereof, beginning on page 34. 2. PURCHASE AND SALE OF NOTES. The Partnership hereby agrees to sell to you and, subject to the terms and conditions herein set forth, you agree to purchase from the Partnership, Notes in the aggregate principal amount equal to the aggregate principal amount of the Converted Loans. The Partnership will deliver to you, at your offices described above (or at such other place as you may designate), one or more Notes registered in your name, evidencing the aggregate principal amount of Notes to be purchased by you and in such denomination or denominations as may be acceptable to you, against the payment of the purchase price of such Notes by delivery of the notes evidencing the Converted Loans in an aggregate principal amount equal to the principal amount of Converted Loans on the date of closing of this transaction, which shall be the Conversion Date (hereinafter also called the "closing" or the "date of closing"). Notwithstanding anything to the contrary in this Agreement, should you suffer a loss of principal on any loan to the Partnership, the REIT or any Affiliate of either, your obligation hereunder to purchase the Notes shall automatically terminate and be of no further force or effect. 3. CONDITIONS OF CLOSING. On the Conversion Date, you will purchase the Notes and will release your Liens against the Collateral, subject to the fulfillment, on or prior to the Conversion Date, of the following conditions. 3A. Conversion Issues. (i) No default nor any event which, through the giving of notice or the passage of time, would constitute a default, (A) shall have occurred on any of your loans with the Partnership, the REIT or Affiliates of either, and be continuing at the Conversion Date, or (B) will result from the conversion of the Converted Loans as provided for herein. (ii) As more particularly outlined herein, the Partnership shall have (A) executed and delivered to you such documents evidencing the conversion of the Converted Loans into senior, unsecured, fully recourse loans of the Partnership as you may require, including, without limitation, the Notes,(B) delivered such evidence as you may require to evidence the Partnership's authority to enter into the conversion transaction, and (C) provided such representations and warranties as of the Conversion Date as you may reasonably require including matters relating to title, environmental matters, possession of agreements, permits, easements, trademarks, labor and employee relations. (iii) No earlier than sixty (60) days prior to the Conversion Date, you shall have received letters from S & P and one other Nationally Recognized Rating Agency, stating that, based on the assumption that the Liens held by you in the Collateral and securing the Converted Loans will be released, the Notes and the other senior long term unsecured debt of the Partnership have received a rating of at least "BBB-" from S&P and the equivalent of S&P's BBB- rating from one such other Nationally Recognized Rating Agency. (iv) The Partnership and the REIT shall provide written evidence satisfactory to you that the covenants in this Agreement, except in paragraph 5L hereof, have been satisfied during the term of this Agreement, and the covenants in paragraph 6A have been strictly satisfied for the four (4) consecutive financial quarters immediately preceding the date of the Partnership's conversion request. Any calculations required to provide such evidence shall treat the Converted Loans and any other secured Debt of the Partnership and its Subsidiaries that will be converted to unsecured contemporaneously with the Converted Loans, as having been unsecured for the four (4) consecutive financial quarters preceding the request. (v) The Partnership shall provide sixty (60) days written notice to you prior to the Conversion Date. Such notice shall include, at minimum, a proposed Conversion Date, a list of the Convertible Loans to be converted, and a statement that all conditions to the conversion as described herein have been satisfied or will be satisfied as of closing. (vi) The Partnership shall pay your reasonable out-of- pocket expenses relating to the conversion, including the fees and expenses of your outside legal counsel. (vii) With its conversion notice the Partnership shall pay to you a $20,000 non-refundable fee. At closing, the Partnership shall pay you an additional fee equal to .25% multiplied by the principal amount of the Converted Loans, less the $20,000 fee described in the preceding sentence. (viii) The (A) market value of the outstanding common stock of the REIT on a date within thirty (30) days of closing plus (B) the Consolidated Funded Debt of the REIT as of that date, shall exceed $1 billion. (ix) On the closing date, no more than eighteen percent (18%) of the apartment units owned by the Partnership, the REIT and their respective Affiliates collectively shall be located in one Metropolitan Statistical Area. For the purposes of this determination, the counties in which Southhaven, Mississippi, Olive Branch, Mississippi and Horn Lake Mississippi are located shall be considered part of the Memphis, Tennessee, Metropolitan Statistical Area. (x) All of the Converted Loan Borrowers shall have been dissolved and their assets distributed to the Partnership pursuant to documentation satisfactory to you. (xi) All accrued and unpaid interest on the Converted Loans through the Conversion Date shall have been paid to you in immediately available federal funds. 3B. Execution and Delivery of Documents. The Partnership and the REIT shall have delivered, or caused to be delivered, to you duly executed, original or certified copies of the following documents, each to be dated the date of Closing unless otherwise indicated: (i) the Note(s). (ii) a favorable opinion of Baker, Donelson, Bearman & Caldwell, special counsel to the Partnership and the REIT (or such other counsel designated by the Partnership and the REIT and reasonably acceptable to you) satisfactory to you and substantially in the form of Schedule 3B(ii) attached hereto and as to such other matters as you may reasonably request. The Partnership and the REIT hereby direct such counsel to deliver such opinion, agree that the issuance and sale of any Notes will constitute a reconfirmation of such direction, and understand and agree that you will and are hereby authorized to rely on such opinion. (iii) the Certificate of Limited Partnership of the Partnership and the Articles of Incorporation of the REIT, each certified as of a date within thirty (30) days of Closing by the Secretary of State of the State in which each such entity was formed. (iv) the limited partnership agreement of the Partnership, and the By-Laws of the REIT, certified (as to the REIT) by its Secretary and (as to the Partnership) by its general partner. (v) an incumbency certificate signed by the general partner of the Partnership and an incumbency certificate signed by the Secretary or an Assistant Secretary and one other officer (who is not signing any other document or agreement in connection herewith) of the REIT, in each case certifying as to the names, titles and true signatures of the general partners of the Partnership and the officers of the REIT authorized to sign this Agreement and the Notes and the other documents to be delivered hereunder. (vi) (a) certificate of the general partner of the Partnership and certificate of the Secretary of the REIT (A) attaching appropriate authority documents of the Partnership and the REIT (respectively) evidencing approval of the transactions contemplated by this Agreement, and the other Loan Documents and the issuance of the Notes, and the other Loan Documents, and the execution, delivery and perfor mance thereof, and authorizing certain general partners (as to the Partnership) and certain officers of the REIT (as to the REIT) to execute and deliver the same, and certifying that such authority documents were duly and validly adopted and such consents and resolutions have not since been amended, revoked or rescinded,(B) certifying that no dissolution, liquidation or winding up proceedings as to the Partnership or the REIT have been commenced or are contemplated, and (C) identifying and attaching any proposed or effected amendments to or changes in the Certificate of Limited Partnership of the Partnership or the Articles of Incorporation of the REIT since the date of the certified copies thereof provided pursuant to clause (i) above or, if none, so certifying. (vii) an Officer's Certificate certifying that(A) the representations and warranties contained in paragraph 8 hereof shall be true on and as of the date of closing, except to the extent of changes caused by the transactions herein contemplated; (B) there shall exist on the date of closing no Default or Event of Default; (C) no condition, event or act that has had or would have a Material Adverse Effect has occurred since the date of this Agreement nor is threatened or reasonably likely to occur. (viii) corporate and tax good standing certificates as to (A) the Partnership, from the State of Tennessee, (B) the REIT, from the State of Tennessee, and (C) each of the other Converted Loan Borrowers, from their respective States of incorporation or formation (as the case may be). (ix) a letter or letters from the auditor or auditors for the Partnership, the REIT and the Converted Loan Borrowers addressed to you, stating that such firm or firms have reviewed the provisions for Federal, state and other income taxes of the Partnership, the REIT and the Converted Loan Borrowers contained in the financial statements as of and for the periods ended in the last quarter prior to the Conversion Date and that, in the opinion of such firm, the Partnership, the REIT and the Converted Loan Borrowers have each either paid or made adequate provision in the consolidated balance sheets included in such financial statements for all unpaid Federal, state and other income taxes for the fiscal years then ended, and for all fiscal years ended prior thereto which have not been examined and reported on by the taxing authorities or closed by applicable statute. (x) Certified copies of Requests for Information or Copies (Form UCC-11) or equivalent reports listing all effective financing statements which name the Partnership, the REIT or any of the Converted Loan Borrowers (under their present name and previous names) as debtor and which are filed in the offices of the Secretaries of State of Tennessee, Florida, and Georgia and any other State in which a Converted Borrower was either organized, incorporated or owned property, together with copies of such financing statements, which shall show no Liens other than the Permitted Liens. (xi) Such documents as you may reasonably request evidencing the authorization of the dissolution of the Converted Loan Borrowers and the distribution of their assets to the Partnership. (xii) One or more unconditional guaranties of payment and performance from the REIT of all of the obligations of the Partnership hereunder and under the other Loan Documents, including, without limitation, the Notes, reasonably satisfactory in form and content to you and in the form of Schedule 3B (xii) attached hereto (each, a "REIT Guaranty"; collectively, the "REIT Guaranties"). (xiii) documents evidencing the satisfaction of the conditions contained in 3A hereof. (xiv) Additional documents or certificates with respect to such legal matters or partnership or corporate or other proceedings related to the transactions contemplated hereby as may be reasonably requested by you. 3C. Opinion of Purchaser's Special Counsel. You shall have received from Glass, McCullough, Sherrill & Harrold, LLP, or such other counsel who is acting as special counsel for you in connection with this transaction, a favorable opinion satisfactory to you as to such matters incident to the matters herein contemplated as you may reasonably request. 3D. Purchase Permitted By Applicable Laws. The purchase of and payment for the Notes to be purchased by you on the date of closing on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Partnership) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject you to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and you shall have received such certificates or other evidence as you may request to establish compliance with this condition. 3E. Proceedings. All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in substance and form to you, and you shall have received all such counterpart originals or certified or other copies of such documents as you may reasonably request. 3F. Privity Letter. You shall have received a letter addressed to you from KMPG Peat Marwick (or such other nationally recognized firm of independent public accountants that are members of the SEC practice section of the American Institute of Certified Public Accountants) to the effect that it acknowledges and understands that (i) the Partnership and the REIT have provided you with a copy of their most recent annual financial statements, as audited by said accounting firm, together with the report of such accounting firm on such financial statements, (ii) you intend to rely upon the report of said accounting firm in connection with your decision to purchase the Notes hereby and (iii) accordingly, you are in privity with said accounting firm with respect to such audited financial statements. 4. PREPAYMENTS. 4A. Optional Prepayments. Notes shall be subject to prepayment, in whole at any time or from time to time in part (in multiples of $5,000,000), at the option of the Partnership, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Prepayment Premium, if any, with respect to each Note. The Partnership shall give the holder of each Note irrevocable written notice of any prepayment pursuant to this paragraph 4A not less than 30 days prior to the prepayment date, specifying such prepayment date and the principal amount of the Notes, and of the Notes held by such holder, to be prepaid on such date and stating that such prepaying is to be made pursuant to this Paragraph 4A. Notice of prepayments having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the Prepayment Premium, if any, with respect thereto, shall become due and payable on such prepayment date. The Partnership shall, on or before the day on which it gives written notice of any prepayment pursuant to this Paragraph 4A, give telephonic notice of the principal amount of the Notes to be prepaid and the prepayment date to each Significant Holder which shall have designated a recipient of such notices by notice in writing to the Partnership. Upon any partial prepayment of the Notes pursuant to this Section 4A, the principal amount so prepaid shall be allocated to all Notes at the time outstanding (including, for the purpose of this Paragraph 4A only, all Notes prepaid or otherwise retired or purchased or otherwise acquired by the Partnership, the REIT or any of their Subsidiaries or Affiliates) in proportion to the respective outstanding principal amounts thereof. 4B. Prepayment Premium. The Prepayment Premium required under this Agreement shall be due and payable, except as otherwise provided in this Agreement or as limited by law, upon any prepayment of any Note, whether voluntary or involuntary, and Holder shall not be obligated to accept any prepayment of the Note unless it is accompanied by the Prepayment Premium, all accrued interest and all other obligations and indebtedness due under the Loan Documents. The holders of the Notes shall notify Partnership of the amount and calculation of the Prepayment Premium. Partnership and the REIT agree that, in determining the Prepayment Premium, (a) the holders of the Notes shall not be obligated to actually reinvest the amount prepaid in any Treasury obligation and (b) the Prepayment Premium is directly related to the damages that the holders will suffer as a result of the prepayment. Notwithstanding the foregoing or anything to the contrary in this Agreement, no Prepayment Premium shall be due on the Notes if they are prepaid during the last fourteen (14) days prior to the Conversion Maturity Date. 5. AFFIRMATIVE COVENANTS. Upon the issuance of the Notes, and so long as all or any of the Notes remain outstanding: 5A. Financial Statements. The Partnership and the REIT covenant that they will deliver to each Significant Holder in triplicate: (i) as soon as practicable and in any event within fifty-five (55) days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, comparative Consolidated statements of income and cash flows and changes in financial position for each of (A) the Partnership and (B) the REIT, for the period from the beginning of the current fiscal year to the end of such quarterly period, and a comparative Consolidated balance sheet for each of (A) the Partnership and (B) the REIT, as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer or general partner (as the case may be) of the Partnership and the REIT, respectively, subject to changes resulting from year-end adjustments; provided, however, that delivery pursuant to clause (iii) below of copies of the Quarterly Report on Form 10-Q of the REIT for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i) with respect to the REIT; (ii) as soon as practicable and in any event within one hundred twenty (120) days after the end of each fiscal year, audited comparative Consolidated statements of income, cash flows and changes in financial position of each of (A) the Partnership and (B) the REIT, for such year, and a comparative Consolidated balance sheet of each of (A) the Partnership and (B) the REIT as at the end of such year, setting forth in each case in comparative form corresponding Consolidated figures from the preceding annual audit, all in reasonable detail and satisfactory in form to the Required Holder(s) and reported on by independent public accountants of recognized national standing that are members of the SEC practice section of the American Institute of Certified Public Accountants selected by the Partnership or the REIT whose report shall be without limitation as to the scope of the audit and reasonably satisfactory in substance to the Required Holder(s) and, as to the consolidating statements, certified by an authorized financial officer or general partner (as the case may be) of the Partnership and the REIT, respectively; provided, however, that delivery pursuant to clause (iii) below of copies of the Annual Report on Form 10-K of the REIT for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii) with respect to the REIT; (iii) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as the Partnership or the REIT shall send to its shareholders, and copies of all registration statements (without exhibits), and all reports which either of them files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (iv) as often as reported to REIT shareholders, such supplemental financial and property level information, in the form provided to the shareholders, which includes property level information regarding all of the REIT's real estate assets, certified by a financial officer of the REIT; (v) within fifteen (15) days of delivery thereof, a copy of each other report submitted to the Partnership or the REIT by independent accountants in connection with any annual, interim or special audit made by them of the books of the Partnership or the REIT; (vi) with reasonable promptness information on adverse litigation and ERISA events; the occurrence or announcement of a Designated Event; (vii) with reasonable promptness, such other financial data and other information as the Partnership or the REIT regularly provides to its other lenders, other holders of Debt or other creditors; (viii) with reasonable promptness, and in any event within thirty (30) days after receipt thereof, a copy of any notice, summons, citation, directive, letter or other form of communication from any governmental authority or court in any way concerning any action or omission on the part of Partnership or the REIT or any Subsidiary of either in connection with any Hazardous Material or concerning the filing of a lien upon, against or in connection with Partnership or the REIT or any Subsidiary of either or any of its leased or owned real or personal property, in connection with a Hazardous Substance Superfund or a Post- Closure Liability Fund as maintained pursuant to U.S.C. 9507; and (ix) with reasonable promptness, such other financial data and property level information or documents as may be reasonably requested by you, including accountant, shareholder and Securities and Exchange Commission notices, reports and filings, rating agency reports and material correspondence, management letters and material press releases; and (x) with reasonable promptness, such other information and documents any Significant Holder may reasonably request. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Partnership and the REIT will each deliver to each Significant Holder an Officer's Certificate demonstrating (with computations in reasonable detail) compliance by the Partnership and the REIT (as the case may be) with the provisions of paragraphs 6A and 6C and stating that there exists no Default or Event of Default, or, if any Default or Event of Default exists, specifying the nature and period of existence thereof and what action the Partnership or the REIT, as the case may be, proposes to take with respect thereto. Together with each delivery of financial statements required by clause (ii) above, the Partnership and the REIT will deliver to each Significant Holder a certificate of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Default or Event of Default, if they have obtained knowledge of any Default or Event of Default, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Default or Event of Default, which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Partnership and the REIT also covenant that immediately and in no event later than ten (10) Business Days after any Responsible Officer obtains knowledge of a Default or Event of Default, he or she will deliver to each Significant Holder an Officer's Certificate specifying the nature and period of existence thereof and what action the Partnership or the REIT (as the case may be) has taken, is taking or proposes to take with respect thereto. For purposes of paragraphs 3F and 5A, any of the accounting firms of Coopers & Lybrand, Arthur Andersen & Co., Deloitte & Touche, KPMG Peat Marwick, Price Waterhouse, Ernst & Young, and their respective successor entities, or an independent accounting firm that is a member in good standing of the SEC Practice Section (or any successor group or section) of the American Institute of Certified Public Accountants shall be deemed to be accountants "of recognized national standing." 5B. Information Required by Rule 144A. The Partnership and the REIT covenant that they will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act (or any other applicable exemption from registration under the Securities Act similar to such Rule 144A) in connection with the resale of Notes, except at such times as the Partnership and the REIT are subject to the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term "qualified institutional buyer" shall have the meaning specified in Rule 144A under the Securities Act. 5C. Inspection of Property. The Partnership and the REIT covenant that they, upon two (2) days prior notice to the Partnership and the REIT (except in the case of a situation that any Significant Holder determines, in its sole discretion may have a negative effect on the health and safety of the tenants or may have a negative effect on the condition of the improvements located on the applicable properties of the Partnership, the REIT and their Subsidiaries) and subject to the rights of tenants and, unless a Default or Event of Default has occurred and is continuing, that any Person who inspects the books and records of the Partnership or REIT, or discusses the same and the finances of the Partnership or REIT (or any Subsidiary thereof) with any executive officer thereof, shall execute a confidentiality agreement in form and substance reasonably satisfactory to the Partnership and the REIT prior to such inspection or discussion; provided, however, such confidentiality agreement shall not preclude a holder from discussing the results thereof with any other holder of the Notes or with any of its participants or with any applicable regulatory agency with jurisdiction over such holder, will permit any Person designated by any Significant Holder in writing, at such Significant Holder's expense prior to a Default or Event of Default and at Partnership's and REIT's expense after a Default or Event of Default, to visit and inspect any of the properties of the Partnership, the REIT, or any of their Subsidiaries, to examine the corporate books and financial records of the Partnership, the REIT or any of their Subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such Persons with the principal officers of the Partnership, the REIT, and their independent public accountants, all at such reasonable times and as often as such Significant Holder may reasonably request. 5D. Payment of Taxes and Claims. The Partnership and the REIT will pay, and will cause all of their Subsidiaries to pay, all taxes, assessments and other governmental charges imposed upon them or any of their properties or assets or in respect of any of their franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums that have become due and payable and which by law have or might become a Lien upon any of their properties or assets; provided, that no such charge or claim need be paid if subject to a Good Faith Contest. 5E. Maintenance of Properties; Compliance with Laws. The Partnership and the REIT covenant that they will, and will cause each of their Subsidiaries to (i) maintain or cause to be maintained in good repair, working order and condition all equipment and other properties necessary at that time in their businesses and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof; and (ii) comply in all material respects with all applicable (A) laws (including Environmental and Safety Laws), rules, regulations, decrees and orders of all Federal, state, local or foreign courts or governmental agencies, authorities, instrumentalities or regulatory bodies and (B) rules, regulations and requirements necessary to maintain their operating and business licenses, authorizations and permits, noncompliance with which could reasonably be expected to result in a Material Adverse Effect. 5F. Maintenance of Insurance. The Partnership and the REIT covenant that they will maintain, and will cause each of their Subsidiaries to maintain, insurance in such amounts and against such casualties, liabilities, risks, contingencies and hazards as is customarily maintained by other similarly situated Persons operating similar businesses and together with each delivery of financial statements under clause (ii) of paragraph 5A, will deliver an Officers' Certificate specifying the details of such insurance in effect. Insurance required by this paragraph 5F shall be with insurers rated A or better by A.M. Best Company (or accorded a similar rating by another nationally or internationally recognized insurance rating agency of similar standing if A.M. Best Company is not then in the business of rating insurers or rating foreign insurers) or such other insurers as may from time to time be reasonably acceptable to the Required Holders. 5G. Maintenance of Priority. The Partnership and the REIT will cause the Notes to, at all times, constitute senior Unsecured Debt of the Partnership that is not subordinated to any other Unsecured Indebtedness of the Partnership and shall rank equally or higher with other existing and future senior Unsecured Debt of the Partnership. 5H. Maintenance of Sole General Partnership. The REIT shall at all times be the sole general partner in the Partnership. 5I. Management of Properties. The Partnership and the REIT shall cause their properties and the properties of their Subsidiaries to be managed by Persons owned or controlled by the REIT or the Partnership. The Partnership and the REIT shall cause all such management agreements to be subordinated to the obligations of the REIT and the Partnership to you. 5J. Investment of Assets. Without in any way limiting the restrictions contained in Paragraph 6A(8) hereof, the Partnership and the REIT shall each keep their assets invested only in the following types of investments: cash and cash equivalents, investments in apartment real property and improvements, development in progress, land held for development, publicly traded securities, mortgages, and investment in Affiliates. 5K. Stock Exchange Listing; REIT Status. The REIT shall maintain a listing for its common stock on the New York Stock Exchange and shall maintain its status as a "real estate investment trust" under Section 856 of the Code. 5L. Investment Grade Rating. The Partnership and the REIT shall at all times, and at their expense, take all action required to maintain, and shall maintain, ratings for the Notes and the senior unsecured Indebtedness of the Partnership and the REIT of at least "BBB-" from S&P and at least the equivalent of S&P's BBB- rating from the other Nationally Recognized Rating Agency that provided them with such rating in connection with the issuance of the Notes. Such Nationally Recognized Rating Agency used must be the same as that used initially unless the original such Nationally Recognized Rating Agency no longer issues such ratings, in which case you, the Partnership and the REIT shall mutually agree on a second Nationally Recognized Rating Agency. The Partnership and the REIT shall provide letters from S&P and the other original Nationally Recognized Rating Agency regarding the ratings of the Notes and of the other senior long term unsecured Indebtedness of the Partnership and the REIT within one hundred eighty (180) days following the end of each fiscal year of the Partnership and the REIT. The Partnership and the REIT hereby agree to promptly give you notice of any downgrade or potential downgrade with respect to the Notes or other of their senior unsecured Indebtedness of the Partnership or the REIT by S&P or the other original Nationally Recognized Rating Agency. 5M. Covenant Regarding Guarantees. The Partnership and the REIT covenant that if any Person provides a Guarantee of (i) any Unsecured Debt of the Partnership or the REIT or (ii) any Debt of the REIT or the Partnership other than Unsecured Debt and the amount of such Debt secured by such a Guarantee then exceeds $25,000,000, they will cause such Person to Guarantee the Notes equally and ratably with such Debt for so long as such Debt is guaranteed; provided, that the provision of any such Guarantee with respect to the Notes shall not in any way limit or modify the rights of the holders of the Notes to enforce the provisions of paragraph 6C(2) hereof. 5N. ERISA. The Partnership and the REIT covenant that they will, and will cause their Subsidiaries to, deliver to you promptly and in any event within ten (10) days after it knows or has reason to know of the occurrence of any event of the type specified in clause (xiv) of paragraph 7A notice of such event and the likely impact on the Partnership, the REIT and their Affiliates. In the event the Partnership, the REIT or any Affiliate of either have participated, now participates or will participate in any Plan or Multiemployer Plan, the Partnership and the REIT covenant that they will, and will cause any Affiliate to, deliver to you: (i) promptly and in any event within ten (10) Business Days after it knows or has reason to know of the occurrence of a Reportable Event with respect to a Plan, a copy of any materials required to be filed with the PBGC with respect to such Reportable Event, together with an Officer's Certificate of the Partnership and the REIT setting forth details as to such Reportable Event and the action which the Partnership and/or the REIT proposes to take with respect thereto; (ii) at least ten (10) Business Days prior to the filing by any plan administrator of a Plan of a notice of intent to terminate such Plan, a copy of such notice; (iii) promptly upon the reasonable request of a Significant Holder, and in no event more than ten (10) Business Days after such request, copies of each annual report on Form 5500 that is filed with the Internal Revenue Service, together with certified financial statements for the Plan (if any) as of the end of such year and actuarial statements on Schedule B to such Form 5500; (iv) promptly and in any event within ten (10) Business Days after it knows or has reason to know of any event or condition which might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, an Officer's Certificate of the REIT and the Partnership describing such event or condition; (v) promptly and in no event more than ten (10) Business Days after its or any ERISA Affiliate's receipt thereof, the notice concerning the imposition of any withdrawal liability under section 4202 of ERISA; and (vi) promptly after receipt thereof, a copy of any notice the Partnership, the REIT or any ERISA Affiliate of either may receive from the PBGC or the Internal Revenue Service with respect to any Plan or Multiemployer Plan; provided, however, that this paragraph 5N shall not apply to notices of general application promulgated by the PBGC or the Internal Revenue Service. 5O. Environmental and Safety Laws. The Partnership and the REIT covenant that they will, and will cause each of their Subsidiaries to, deliver promptly to you any notice of (i) any material enforcement, cleanup, removal or other material governmental or regulatory actions instituted, completed or, to the Partnership's and the REIT's best knowledge, threatened pursuant to any Environmental and Safety Laws; (ii) all material Environmental Costs and Liabilities against or in respect of any Property, the Partnership, the REIT or any Subsidiary of either; and (iii) the Company's, the REIT's or any Subsidiary's discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Property that such Partnership, REIT or Subsidiary has reason to believe could cause such Property or any material part thereof to be subject to any material restrictions on its ownership, occupancy, transferability or use under any Environmental and Safety Laws. 5P. Existence, etc.; Business. The Partnership and the REIT covenant that they will, and will cause all their Subsidiaries to, preserve and keep in full force and effect at all times their corporate or partnership existence, and permits, licenses, franchises and other rights material to their businesses, except that the corporate or partnership existence of any Subsidiary may be terminated if, in the good faith judgment of the of the Partnership or the REIT (as the case may be), such termination is in the best interest of the Partnership or the REIT and is not disadvantageous to the holders of the Notes. The Partnership and the REIT covenant they will not, and will not permit any Affiliate to, engage in any business other than the businesses conducted by the Partnership, the REIT and their Affiliates on the date of the financial statements described in paragraph 8B. 5Q. Maintenance of License Agreements. The Partnership and the REIT covenant that (i) they will maintain and preserve their current and any future license agreements, and shall not do or suffer to be done anything that will adversely affect such license arrangements except to the extent that any such adverse effect(s) is or are not, in the aggregate, material to the business, property, prospects, assets, liabilities or financial position of the Partnership or the REIT; and (ii) they shall give the Significant Holders notice of any material amendments to their license agreements currently in existence, such notice to be given at least five (5) Business Days in advance of the effectiveness of such amendment. 5R. Books and Accounts. The Partnership and the REIT covenant that they will, and will cause each of their Subsidiaries to, maintain proper and accurate books of record and account in which full, true and correct entries shall be made of its transactions and set aside on its books from its earnings for each fiscal period all such proper reserves as in each case shall be required in accordance with GAAP, consistently applied. 5S. Compensation Committee. The REIT shall continue to have a compensation committee of its Board of Directors comprised of a majority of independent directors to set compensation for its and the Partnership's senior executives. 6. Negative Covenants. Upon the issuance of the Notes, and so long as any Note or amount owing under the Notes or this Agreement shall remain unpaid, or you shall have any commitment hereunder: 6A. Financial Covenants. Neither the Partnership nor the REIT will, on a Consolidated basis, permit (or, in the case of clause 6A(8) hereof, make or have exist): 6A(1). Fixed Charge Coverage. The ratio of its Consolidated Income Available for Debt Service to its Annual Debt Service Charge to be less than 2.0 to 1.0 for the four (4) consecutive fiscal quarter periods most recently ended as of the last day of the fiscal quarter. 6A(2). Debt to Real Property. Its outstanding Debt to be greater than fifty-five percent (55%) of Undepreciated Real Estate Assets as of the last day of the fiscal quarter. 6A(3). Secured Debt. Its outstanding Debt or other Indebtedness secured by total Liens on any of its property or assets to be greater than thirty-seven percent (37%) of its Undepreciated Real Estate Assets as of the last day of the quarter. 6A(4). Unencumbered Assets. Its Total Unencumbered Assets to be less than one hundred sixty-seven percent (167%) of the aggregate principal amount of all of its outstanding Unsecured Debt (on a Consolidated basis) as of the last day of the quarter. 6A(5). Coverage. Its Property Income from its Total Unencumbered Assets to be less than 1.67 multiplied by its Annual Debt Service Charge from its Unsecured Debt for the four (4) consecutive fiscal quarters most recently ended as of the last day of the fiscal quarter. 6A(6). Sale or Disposal. The sale or disposal of more than ten percent (10%) of its Total Assets in any twelve (12) month period unless seventy-five percent (75%) or more of the proceeds of all such sales or dispositions are reinvested in other apartment real estate assets or used to pay down/off Debt within twelve (12) months from the date of such sales or dispositions. 6A(7) Net Worth. Its Net Worth to be less than $300 million (excluding Minority Interests) or eighty-five percent (85%) of the Net Worth of the REIT at the quarter end immediately prior to Conversion, whichever is greater. 6A(8) Investments. As a percentage of its Total Assets, Investments in the following categories of properties greater than the following amounts: (i) Development in progress plus land held for development: 10% (ii) Land held for development: 3% (iii)Publicly traded securities: 5% (iv) Mortgages: 3% 6B. Restricted Payments. Each of the Partnership and the REIT covenants that it will not, and will not permit any Subsidiary to, make, pay or declare, or commit to make, pay or declare, any Restricted Payment unless no Default or Event of Default exists or would exist after giving effect to such Restricted Payment. Notwithstanding in this Paragraph 6B shall prevent the REIT from making such distributions to its Shareholders as shall be required to maintain its status as a "real estate investment trust" under Section 856 of the Code. 6C. Debt, and Other Restrictions. Each of the Partnership and the REIT will not, and will not permit any Subsidiary to: 6C(1). Debt. Create, incur, assume or suffer to exist any Debt, except (i) (A) Debt of any Subsidiary to the Partnership, the REIT or any Wholly Owned Subsidiary of either, or (B) the Convertible Loans that are not the Converted Loans. (ii) Current Debt of the Partnership or the REIT (other than Current Debt owed to any Subsidiary) in an amount not in excess of 40% of its total Debt at any time. (iii) other Funded Debt of the Partnership or the REIT (other than Debt to any Subsidiary), provided that (A) the aggregate principal amount of all of its Funded Debt (including, for the Partnership, the Notes), including Priority Debt, on a Consolidated basis does not cause the Partnership or the REIT to violate the limitations set forth in paragraph 6A hereof; and (B) the Partnership or the REIT shall not Guarantee Debt of any Subsidiary except pursuant to a subordination agreement subordinating the beneficiary of such Guarantee's rights with respect to payment of such Debt to the payment of the Notes and otherwise in form and substance satisfactory to the Required Holders and only if such Subsidiary unconditionally Guarantees the Notes pursuant to a guaranty in form and substance satisfactory to the Required Holders; (iv) non-recourse mortgage Debt of Subsidiaries secured by their real property assets, so long as such Debt does not cause a violation of paragraph 6A hereof. Notwithstanding the foregoing, no floating rate Debt permitted under this Agreement (including under Paragraph 6A hereof) shall be permitted thereunder if, after such Debt is incurred, the REIT's or the Partnership's total floating rate Debt (on a Consolidated basis) would exceed 40% of its total Debt. 6C(2). Loans, Advances, Investments and Contingent Liabilities. Make or permit to remain outstanding any loan or advance to, or extend credit other than credit extended in the normal course of business to any Person who is not an Affiliate of the Partnership or the REIT to, or Guarantee, directly or indirectly, in connection with the obligations, stock or dividends of, or own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person, or commit to do any of the foregoing, (all of the foregoing collectively being "Investments"), except for the Investments set forth in clauses (i) - (xvii) below (collectively, "Permitted Investments"): (i) loans or advances to any Wholly Owned Subsidiary, (ii) stock, obligations or other securities of, or capital contributions to, a Wholly Owned Subsidiary or a corporation which immediately after the purchase or acquisition of such stock, obligations or other securities will be a Wholly Owned Subsidiary; (iii)obligations backed by the full faith and credit of the United States Government (whether issued by the United States Government or an agency thereof), and obligations guaranteed by the United States Government, in each case which mature within one (1) year from the date acquired; (iv) (A) demand and time deposits with, Eurodollar deposits with or certificates of deposit or other securities or obligations fully backed by letters of credit issued by or (B) bankers' acceptances eligible for rediscount under require ments of The Board of Governors of the Federal Reserve System that are accepted by, any commercial bank or trust Partnership (1) organized under the laws of the United States or any of its states or having branch offices therein, (2) having equity capital in excess of $250,000,000 and (3) who issues either (x) senior debt securities rated A or better by S&P, A by Moody's or (y) commercial paper rated A-1 by S&P or Prime-1 by Moody's (or, in either case, an equivalent rating from another Rating Agency), in each case payable in the United States in United States dollars, in each case which mature within one year from the date acquired; (v) readily marketable commercial paper rated as A-1 or better by S&P or Prime-1 or better by Moody's (or, in either case, an equivalent rating from another Rating Agency) and maturing not more than two hundred seventy (270) days from the date acquired; (vi) bonds, debentures, notes or similar debt instruments issued by a state or municipality given a "AA" rating or better by S&P or an equivalent rating by another Rating Agency and maturing not more than one (1) year from the date acquired; (vii) negotiable instruments endorsed for collection in the ordinary course of business; (viii) the loans, investments and advances existing as of the date hereof and listed on Schedule 6C(2) hereto, and extensions, renewals and/or modifications thereof (so long as the principal amount thereof is not increased); (ix) Investments arising from transactions by the Partnership or the REIT or any Subsidiary of either with customers or suppliers or otherwise in settlement of debt (including Investments received in settlement of trade receivables which trade receivables are fully reserved against on the books of the Partnership, the REIT or such Subsidiary or are less than one (1) year overdue) in the ordinary course of business; (x) repurchase agreements for terms of less than one (1) year, provided that such repurchase agreement or undertakings are secured and collateralized by obligations backed by the full faith and credit of the United States Government in aggregate face amount equal to or greater than the obligations so secured; (xi) money market mutual funds that (A) are denominated in U.S. Dollars, (B) have average asset maturities not in excess of three hundred sixty-five (365) days, (C) have total invested assets in excess of $1,000,000,000 and (D) invest exclusively in Permitted Investments, as defined hereby; (xii)readily marketable floating rate cumulative Preferred Stocks, money market Preferred Stocks or other equivalent Dutch auction Preferred Stock maturing within three hundred sixty-five (365) days of the date of acquisition thereof with a credit rating of A or better from S&P or A2 or better from Moody's or a comparable rating from another Rating Agency acceptable to the Required Holders, or in stocks of investment companies registered under the Investment Company Act of 1940, as amended, which invest solely in Preferred Stock of the type just described; (xiii)Preferred Stock of industrial or utility corporations having senior unsecured debt ratings of A or better from S&P or A2 or better from Moody's; (xiv) Investments that do not violate the terms of Paragraph 6A(8) hereof. (xv) Investments (including loans to officers, directors, partners, shareholders and employees of the Partnership and the REIT) other than those set forth in the preceding clause (i) - (xvi) of this definition; provided that the aggregate amount of such Investments, valued at the original cost thereof, shall not exceed 5% of its Consolidated Tangible Net Worth at any time. Notwithstanding the foregoing, no Subsidiary of either the REIT or the Partnership shall make any loan or advance to, or acquire any stock, obligations or securities of, the Partnership or the REIT. 6C(3). Sale of Stock and Debt of Subsidiaries. Sell or otherwise dispose of, or part with control of, any shares of stock, Debt or partnership or other interests of any Subsidiary, except (i) to the Partnership, the REIT or a Wholly Owned Subsidiary of either, (ii) for issuance of Subsidiary Debt in compliance with paragraph 6C(1) or (iii) that all shares of stock (or partnership or other interests, as the case may be) and Debt of any Subsidiary at the time owned by or owed to the Partnership, the REIT, and/or any Subsidiary may be sold as an entirety for a cash consideration which represents the fair value (as determined in good faith by the Partnership or the Board of Directors of the REIT, as applicable) at the time of sale of the shares of stock and Debt so sold; provided that(A) such sale or other disposition is permitted by paragraph 6C(5) and (B) at the time of such sale, such Subsidiary shall not own, directly or indirectly, any equity interests in any other Subsidiary (unless all of the equity interests in such other Subsidiary owned, directly or indirectly, by the Partnership, the REIT or the Subsidiaries of either are simultaneously being sold as permitted by this Paragraph 6C(3)); 6C(4). Merger and Consolidation. Merge or consolidate with or into any other Person, except that: (i) any Subsidiary thereof may merge or consolidate with or into the Partnership or the REIT; provided that the Partnership or the REIT (as the case may be) is the continuing or surviving entity, (ii) any Subsidiary of the Partnership or the REIT may merge or consolidate with or into a Wholly Owned Subsidiary of the same entity; provided that such Wholly Owned Subsidiary is the continuing or surviving entity, (iii)the Partnership or the REIT may consolidate or merge with any other entity if (A) (1) the Partnership or the REIT (as the case may be) shall be the continuing or surviving entity or (2) the continuing or surviving entity is a solvent corporation, partnership or other limited liability entity duly organized and existing under the laws of any state of the United States of America, with substantially all of its assets located and substantially all of its operations conducted within the United States of America, and such continuing or surviving corporation expressly assumes, by a written agreement satisfactory in form and substance to the Required Holders (which agreement may require, in connection with such assumption, the delivery of such opinions of counsel as the Required Holders may require), the obligations of the Partnership and the REIT under this Agreement, the REIT Guaranties and the Notes, including all covenants herein and therein contained, and such successor or acquiring entity shall succeed to and be substituted for the Partnership or the REIT (as the case may be) with the same effect as if it had been named herein as a party hereto, and (B) no Default or Event of Default exists or would exist after giving effect to such merger or consolidation; (iv) any Affiliate may merge or consolidate with any other corporation, provided that, immediately after giving effect to such merger or consolidation (a) a Wholly Owned Affiliate shall be the continuing or surviving corporation and (b) no Default or Event of Default exists or would exist after giving effect to such merger or consolidation and the Partnership and the REIT shall each be able to incur at least $1.00 of additional Debt under clause (iv) of paragraph 6C(1); 6C(5). Transfer of Assets. Transfer, or agree or otherwise commit to Transfer, any of its assets or acquire all or substantially all of the assets of any Person except that: (i) any Subsidiary may Transfer assets to the Partnership, the REIT or a Wholly Owned Subsidiary of either; (ii) the Partnership, the REIT or any Subsidiary may sell inventory in the ordinary course of business, (iii) the Partnership, the REIT or any Subsidiary of either may otherwise Transfer assets, provided that after giving effect thereto no Default or Event of Default shall occur, including, without limitation, under paragraph 6A(6) hereof; 6C(6). Lease Rentals. Permit the aggregate of all payments under operating leases with a term, inclusive of all renewal options, in excess of one year from the date of inception, to exceed $750,000 during any fiscal year; 6C(7). Sale and Lease-Back. Enter into any arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by the Partnership, the REIT or any Subsidiary of either of real or personal property which has been or is to be Transferred by the Partnership, the REIT or any Subsidiary of either to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such property or rental obligations of the Partnership, the REIT or any Subsidiary of either; 6C(8). Sale or Discount of Receivables. Sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable; 6C(9). Related Party Transactions. Directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property to, or otherwise deal with, in the ordinary course of business or otherwise any Related Party, except in the ordinary course of business and upon terms that are no less favorable to the Partnership, the REIT or an Subsidiary of either, as the case may be, than those that could be obtained in an arm's-length transaction with an unrelated third party; 6C(10). Superior Debt. Create, assume or incur, or in any manner become or be liable in respect of, Indebtedness for money borrowed, advances made, or goods purchased, if the lender of such money or the Person making such advances, or the vendor of such goods (or any Person who guarantees or otherwise becomes surety for the whole or any part of such Indebtedness or acquires any right or incurs any obligation to become, either immediately or upon the occurrence of some future contingency, the owner of the whole or any part thereof) shall have any right, by reason of statute (including, without limitation, United States Revised Statutes 3466, 31 U.S.C.A. 191), or otherwise to have any claim in respect of such Indebtedness first satisfied out of the general assets of the Partnership, the REIT or such Subsidiary in priority to the claims of its general creditors, unless such Indebtedness constitutes permitted Priority Debt under paragraph 6(C)(1) hereof. 6C(11). Transfer of Assets to Subsidiaries. Transfer any real property assets (whether developed or undeveloped) to a Subsidiary; 6C(12). Affiliate Restrictions. Except (x) as set forth in Schedule 6C(12) attached hereto and (y) in connection with acquisition (to the extent otherwise permitted under this Agreement) of Subsidiaries or properties that are, as applicable, parties to or subject to Debt (A) from or through the Department of Housing and Urban Development or constituting tax exempt industrial development bonds under Section 103 (a) of the Code (provided, in each such case under this clause (y), the amount of such Debt for each project does not exceed $25,000,000), enter into, or be otherwise subject to, any contract, agreement or other binding obligation that directly or indirectly limits the amount of, or otherwise restricts (i) the payment to the Partnership or the REIT of dividends or other redemptions or distributions with respect to its equity interests by any Affiliate, (ii) the repayment to the Partnership or the REIT by any Affiliate of intercompany loans or advances, or (iii) other intercompany transfers to the Partnership or the REIT of property or other assets by Affiliates. 6C(13). Prudential Debt. Permit the aggregate amount of the Notes and all other Debt owed to Prudential and its Affiliates to exceed at any time 25% of the aggregate amount of all its Debt on a Consolidated basis. 6C(14). ERISA. (A) With respect to any Plan, fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or seek or have granted a waiver of such standards or extension of any amortization period under section 412 of the Code, (B) file, have filed (by it or any other Person) or permit to be filed, a notice of intent to terminate any Plan or permit to exist any condition under which it is reasonably expected that a notice of intent will be filed with the PBGC, or permit to exist any condition under which the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or permit to exist any condition under which the PBGC shall have notified the Partnership, the REIT or any ERISA Affiliate of either that a Plan may become a subject of such proceedings, (C) permit the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, to exceed $1.00, (D) incur or permit to exist any condition under which it is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (E) withdraw from any Multiemployer Plan, or (F) establish or amend any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Partnership, the REIT or any Subsidiary of either thereunder; and any such event or events described in clauses (A) through (F) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. 6D. Issuance of Stock by Subsidiaries. Each of the Partnership and the REIT covenants that it will not permit any Subsidiary of either of them (either directly, or indirectly by the issuance of rights or options for, or securities convertible into, such shares) to issue, sell or dispose of any equity interests of any class except to the Partnership, the REIT or a Wholly Owned Subsidiary of either; 7. EVENTS OF DEFAULT. 7A. Acceleration. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Partnership defaults in the payment of any principal of, or Prepayment Premium payable with respect to, any Note when the same shall become due, either by the terms thereof or otherwise as herein provided and such default continues for more than five (5) days after notice of the occurrence of such default (but with only one such notice and cure period during any such 12 month period); or (ii) the Partnership defaults in the payment of any interest on any Note for more than ten (10) days after notice of such default (but with only one such notice and cure period during any such 12 month period); or (iii) the Partnership, the REIT or any Subsidiary defaults (whether as primary obligor or as guarantor or other surety) in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or the Partnership, the REIT or any Affiliate fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due (or to be repurchased by the Partnership, the REIT or any Subsidiary of either) prior to any stated maturity, provided that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration (or resale to the Partnership, the REIT or any Subsidiary of either) shall occur and be continuing exceeds $5,000,000 (or, with respect to obligations that are nonrecourse debt secured by recourse only to specific assets, the $25,000,000); or (iv) any representation or warranty made by or on behalf of the Partnership, the REIT, or any of their general partners or officers (as the case may be) herein or in any other writing furnished in connection with or pursuant to this Agreement or the transactions contemplated hereby shall be false in any material respect on the date as of which made; or (v) the Partnership or the REIT fails to perform or observe any agreement contained in paragraph 5F or 6 and such failure continues for more than ten (10) days after notice thereof; or (vi) the Partnership or the REIT fails to perform or observe any other agreement, term or condition contained herein and such failure shall not be remedied within thirty (30) days after the earlier of (A) any Responsible Officer obtaining actual knowledge thereof and (B) the Partnership or the REIT (as the case may be) receiving written notice of such default from any holder of a Note; or (vii) the Partnership, the REIT or any Subsidiary of either makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii) any decree or order for relief in respect of the Partnership, the REIT or any Subsidiary of either is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or (ix) the Partnership, the REIT or any Subsidiary of either petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Partnership, the REIT or any Subsidiary of either, or of any substantial part of the assets of the Partnership, the REIT or any Subsidiary of either, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings relating to the Partnership or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any such petition or application is filed, or any such proceedings are commenced, against the Partnership, the REIT or any Subsidiary of either, and the Partnership, the REIT or such Subsidiary by any act indicates its approval thereof, consents thereto or acquiescences therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xi) any order, judgment or decree is entered in any proceedings against the Partnership , the REIT or any Subsidiary of either decreeing the dissolution of the Partnership, the REIT or such Subsidiary, and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xii) any order, judgment or decree is entered in any proceedings against the Partnership, the REIT or any Subsidiary of either decreeing a split-up of the Partnership, the REIT or any Subsidiary of either which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Subsidiary whose assets represent a substantial part, of the consolidated assets of the Partnership, the REIT or the Subsidiaries of either(determined in accordance with GAAP) or which requires the divestiture of assets, or stock of a Subsidiary, which shall have contributed a substantial part of the Consolidated Net Income of the Partnership, the REIT and its Subsidiaries (determined in accordance with GAAP) for any of the three (3) fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days (as used in this clause (xii), "substantial" shall mean in excess of 20% of Consolidated Tangible Net Worth or Consolidated Net Income, as the case may be); or (xiii) one or more final judgments in an aggregate amount in excess of $2,000,000 is rendered against the Partnership, the REIT or any Subsidiary of either and, within sixty (60) days after entry thereof, a solvent insurance carrier or carriers have not confirmed in writing that each such judgment is fully insured or any such judgment is not discharged or execution thereof stayed pending appeal, or within sixty (60) days after the expiration of any such stay, any such judgment is not discharged or a judgment in an amount in excess of $5,000,000 is rendered against the Partnership, the REIT or any Subsidiary of either, irrespective of whether such judgment is discharged or stayed pending appeal; or (xiv) any of the REIT Guaranties, for any reason other than satisfaction in full of the obligations of the Partnership hereunder and under the Notes, ceases to be in full force and effect or is declared null and void, or the validity or enforceability thereof is contested in a judicial proceeding or the REIT denies that it has any further liability under any of the REIT Guaranties or the REIT shall default in the performance or observance of any of its obligations under any of the REIT Guaranties, and such default shall not have been remedied within thirty (30) days; (xv) any Material Right of the Partnership, the REIT, or any Subsidiary necessary to own or operate its business is suspended, withdrawn or revoked or modified in a manner materially adverse to the rights of the Partnership, the REIT or such Subsidiary; (xvi)(i) any Person or two or more Persons (except the REIT, its sole general partner) acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) directly or indirectly, of equity interests of the Partnership or the REIT (or other interests convertible into such securities) representing thirty percent (30%) or more of all equity interests in the Partnership or the REIT (as the case may be); or (ii) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement which upon consummation will result in its or their acquisition of, control over equity interests of the Partnership or the REIT (or other interests convertible into such interests) representing thirty percent (30%) or more of all interests of the Partnership or the REIT; or (iii) (a) during any period of two (2) consecutive years, Persons who at the beginning of such period constitute the Partnership's general partners cease for any reason to be general partners of the Partnership, or (b) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the REIT's Board of Directors (together with any new director whose election by the REIT's Board of Directors or whose nomination for election by the REIT's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; then (a) if such event is an Event of Default specified in clause (i) or (ii) of this paragraph 7A which is not cured within any applicable grace or cure period, the holder of any Note (other than the Partnership, the REIT or any of their Subsidiaries), the outstanding principal amount of which at the time exceeds ten percent (10%) of the outstanding principal amount of all of Notes, may at its option during the continuance of such Event of Default, by notice in writing to the Partnership and the REIT, declare such Note to be, and such Note shall thereupon be and become, immediately due and payable at par, together with interest accrued thereon and Prepayment Premium, if any, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Partnership and the REIT, (b) if such event is an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A, all of the Notes at the time outstanding shall automatically become immediately due and payable, together with interest accrued thereon and the Prepayment Premium, if any, and to the extent permitted by law, with respect to each Note, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Partnership and the REIT, and(c) with respect to any other event constituting an Event of Default, the Required Holder(s) may at its or their option, by notice in writing to the Partnership, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Prepayment Premium, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Partnership. The Partnership and the REIT acknowledge, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment(except as herein specifically provided for) and that the provision for payment of the Prepayment Premium by the Partnership or the REIT in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. Promptly following the acceleration of all of the Notes, the Computing Holder shall give written notice to the Partnership and the REIT of the amount of the Prepayment Premium in respect of the Notes (which notice shall set forth in reasonable detail the computation of such Prepayment Premium and the assumptions made in connection therewith). Such notice shall be given within five (5) Business Days if such Computing Holder has given such notice of acceleration, and otherwise promptly after such Computing Holder has knowledge of such acceleration. If any Note has been accelerated pursuant to clause (i) of this paragraph 7A, then the holder which has so accelerated such Note shall give written notice to the Partnership and the REIT of the Prepayment Premium in respect of such Note promptly after such acceleration. The failure by a Computing Holder to give notice as aforesaid as to the computation of the Prepayment Premium in respect of any Note shall not relieve the Partnership or the REIT of the obligation as of the date of such acceleration to pay such Prepayment Premium forthwith after such Prepayment Premium is determined (and in such case the determination of such Prepayment Premium by the holder of any Note which has been so accelerated shall be deemed to be conclusive with respect to such Note absent manifest error). 7B. Rescission of Acceleration. At any time after any or all of the Notes shall have been declared immediately due and payable pursuant to paragraph 7A, the Required Holder(s) may, by notice in writing to the Partnership and the REIT, rescind and annul such declaration and its consequences if (i) the Partnership or the REIT shall have paid all overdue interest on the Notes, the principal of and the Prepayment Premium, if any, payable with respect to any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and the Prepayment Premium at the rate specified in the Notes, (ii) the Partnership or the REIT shall not have paid any amounts which have become due solely by reason of such declaration, (iii) all Defaults and Events of Default other than non-payment of amounts which have become due solely by reason of such declaration, shall have been cured or waived pursuant to paragraph 11C, and (iv) no judgment or decree shall have been entered for the payment of any amounts due pursuant to the Notes or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Default or Event of Default, or impair any right arising therefrom. 7C. Notice of Acceleration or Rescission. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A or any such declaration shall be rescinded and annulled pursuant to paragraph 7B, the Partnership shall forthwith give written notice thereof to the holder of each Note at the time outstanding. 7D. Other Remedies. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. Without limiting the generality of the immediately preceding paragraph, the parties hereto agree that the covenants and agreements contained herein are of a unique nature, the breach of which either cannot be adequately compensated by monetary damages or may not necessarily result in the ability of the aggrieved party to obtain relief. The parties therefore agree that the breach by one party of its covenants or other agreements contained herein shall entitle the other, aggrieved party to seek and obtain specific performance or such other equitable relief as such party deems appropriate, and each party hereto consents to the availability of such remedies, and agrees and represents that this Agreement is a material inducement to its entry into this Agreement. 8. REPRESENTATIONS AND WARRANTIES. The Partnership and the REIT represent, covenant and warrant as follows: 8A1. Organization - Partnership. The Partnership is a limited partnership duly organized and existing in good standing under the laws of the State of Tennessee, and is duly qualified as a foreign entity and is in good standing in each jurisdiction in which such qualification is required by law. Further, each Subsidiary of the Partnership is duly organized and existing in good standing under the laws of the jurisdiction in which it was formed. The Partnership and each Subsidiary of the Partnership have the corporate or partnership (as the case may be) power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof. 8A2. Organization - REIT. The REIT is a corporation duly organized and existing in good standing under the laws of the State of Tennessee, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law. The REIT and each Subsidiary of the REIT is duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated or organized. Each of the REIT and its Subsidiaries has the corporate or partnership (as the case may be) power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof. 8A3. Subsidiaries. Schedule 8A contains (except as noted therein) complete and correct lists (i) of Subsidiaries of the Partnership and the REIT, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its equity interests outstanding owned by the Partnership and the REIT and each other Subsidiary, (ii) of the Subsidiaries of the Partnership and the REIT, and (iii) of the directors, senior officers, general partners, limited partners, members, Shareholders of the Partnership and the REIT. 8B. Financial Statements. The Partnership and the REIT have furnished you with the following financial statements, identified by a principal financial officer of the Partnership and the REIT respectively: (i) a consolidated and consolidating balance sheet of the REIT and its Subsidiaries as at December 31 in each of the years 1994 to 1996, inclusive, and consolidated and consolidating statements of income, stockholders' equity and cash flows of the REIT and its Subsidiaries for each such year, all reported on by KPMG Peat Marwick; and (ii) a consolidated and consolidating balance sheet of the REIT and its Subsidiaries as at June 30 1997 and consolidated and consolidating statements of income, stockholders' equity and cash flows for the six-month period ended on such date, prepared by the REIT. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with GAAP consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Partnership, the REIT and their Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Partnership, the REIT and their Subsidiaries as and at the dates thereof, and the statements of income, stockholders' equity and cash flows fairly present the results of the operations of the Partnership, the REIT and their Subsidiaries and their cash flows for the periods indicated. There has been no material adverse change in the business, condition (financial or otherwise) or operations of the Partnership, the REIT and their Subsidiaries taken as a whole since the date of this Agreement. 8C. Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Partnership or the REIT, threatened against the Partnership, the REIT or any of their Subsidiaries, or any properties or rights of the Partnership, the REIT or any of their Subsidiaries, by or before any court, arbitrator or administrative or governmental body which (i) might result in a Material Adverse Effect or (ii) purports to affect the validity or enforceability of this Agreement, any Note issued hereunder, the REIT Guaranties, any document executed or delivered in connection with the Notes or the REIT Guaranties, or the transactions contemplated hereby or thereby. 8D. Outstanding Debt. Neither the Partnership, the REIT, nor any of their Subsidiaries, has outstanding any Debt except as permitted by paragraph 6A and paragraph 6C(1) hereof. There exists no default under the provisions of any instrument evidencing such Debt or of any agreement relating thereto. 8E. Title to Properties. The Partnership, the REIT and each of their Subsidiaries have good and indefeasible title to their real properties (other than properties which it leases) and good title to all of their other properties and assets, including the properties and assets reflected in the balance sheet as at the Conversion Date referred to in paragraph 8B (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6C(1) All leases necessary in any material respect for the conduct of the respective businesses of the Partnership, the REIT and their Subsidiaries are valid and subsisting and are in full force and effect. 8F. Taxes. The Partnership, the REIT and each of their Subsidiaries has filed all federal, state and other income tax returns which, to the knowledge of the officers of the REIT and the general partner of the Partnership, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are subject to a Good Faith Contest. 8G. Conflicting Agreements and Other Matters. Neither the Partnership, the REIT or any of their Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, property or assets, or financial condition. Neither the execution nor delivery of this Agreement, the REIT Guaranties, or the Notes, nor the offering, issuance and sale of the Notes or the REIT Guaranties, nor fulfillment of nor compliance with the terms and provisions hereof, the Notes or the REIT Guaranties will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Partnership, the REIT or any of its Subsidiaries pursuant to, the charter documents of the Partnership, the REIT or any of their Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Partnership, the REIT or any of their Subsidiaries is subject. Neither the Partnership, the REIT nor any of their Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Partnership, the REIT or such Subsidiary of either, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Partnership or the REIT of the type to be evidenced by the Notes except as set forth in the agreements listed in Schedule 8G attached hereto. 8H. Offering of Notes. Neither the Partnership, the REIT, nor any agent acting on behalf of either or both of them has, directly or indirectly, offered the Notes or any similar security of the Partnership for sale to, or solicited any offers to buy the Notes or any similar security of the Partnership from, or otherwise approached or negotiated with respect thereto with, any Person other than you, and neither the Partnership, the REIT nor any agent acting on behalf of either has taken or will take any action which would subject the issuance or sale of the Notes to the provisions of section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 8I. Use of Proceeds. Neither the Partnership, the REIT nor any Subsidiary of either owns or has any present intention of acquiring any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System (herein called "margin stock"). The proceeds of sale of the Notes will be used to refinance all or a portion of the Convertible Loans. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any Indebtedness which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation G. Neither the Partnership, the REIT or any of their Subsidiaries are engaged principally, or as one of their important activities, in the business of extending credit for the purpose of purchasing or carrying " margin stock" (within the meaning of Regulation G of the Board of Governors of the Federal Reserve System), and the aggregate market value of all "margin stock" owned by the Partnership, the REIT and the Subsidiaries of both does not exceed twenty-five percent (25%) of the aggregate value of the assets thereof, as determined by any reasonable method. Neither the Partnership, the REIT nor any agent acting on behalf of either of them has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. 8J. ERISA. (i) No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). (ii) No liability to the PBGC has been or is expected by the Partnership, the REIT or any ERISA Affiliate of either to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Partnership , the REIT or any Subsidiary of either or any ERISA Affiliate which is or would be materially adverse to the business, condition (financial or otherwise) or operations of the Partnership, the REIT and the Subsidiaries of both, taken as a whole. (iii) Neither the Partnership, the REIT, any Subsidiary of either, nor any ERISA Affiliate of either of them has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the business, condition (financial or otherwise) or operations of the Partnership, the REIT and their Subsidiaries taken as a whole. (iv) The expected post-retirement benefit obligations (determined as of the last day of the Partnership's and the REIT's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement 106, without regard to liabilities attributable to continuation coverage mandated by Section 4980B of the Code) of the Partnership, the REIT and their Subsidiaries is not material. (v) The present value of the aggregate benefit liabilities under each Plan (other than Multiemployer Plans), determined as of the end of such Plans' most recently ended Plan year on the basis of the actuarial assumption specified for funding purposes in such Plans most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such plan allocable to such benefit liabilities. The term "benefit liabilities" has the meaning specified as section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in Section 3 of ERISA. (vi) The execution and delivery of this Agreement and the REIT Guaranties, and the issuance and sale of the Notes, will be exempt from, or will not involve any transaction which is subject to, the prohibitions of section 406 of ERISA and will not involve any transaction in connection with which a penalty could be imposed under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code. The representation by the Partnership and the REIT in the next preceding sentence is made in reliance upon and subject to the accuracy of your representation in paragraph 9B. 8K. Governmental Consent. No circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the date of closing with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement and the REIT Guaranties, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof, of the REIT Guaranties or of the Notes. 8L. Compliance with Laws. The Partnership, the REIT and their Subsidiaries and all of their respective properties and facilities have complied at all times and in all material respects with all federal, state, local and regional statutes, laws, ordinances and judicial or administrative orders, judgments, rulings and regulations, including those relating to protection of the environment except, in any such case, where failure to comply would not result in a material adverse effect on the business, condition (financial or otherwise) or operations of the Partnership, the REIT and their Subsidiaries taken as a whole. 8M. Environmental Compliance. Except as disclosed on Schedule 8M hereto, the Partnership, the REIT and each Subsidiary of each (i) has complied in all material respects with all applicable material Environmental and Safety Laws and all laws regulating or relating to their businesses, and neither the Partnership, the REIT nor any Subsidiary of either has received (A) notice of any material failure so to comply, (B) any letter or request for information under Section 104 of CERCLA or comparable state laws or (C) any information that would lead it to believe that it is the subject of any Federal, state or local investigation concerning Environmental and Safety Laws; (ii) does not manage, generate, transport, discharge or store any Hazardous Materials in material violation of any material Environmental and Safety Laws; (iii) does not own, operate or maintain any underground storage tanks or surface impoundments; and (iv) is not aware or any conditions or circumstances associated with their respective currently or previously owned or leased Properties or operations (or those of their respective tenants) which may give rise to any Environmental Costs and Liabilities which could have a Material Adverse Effect. 8N. Utility Company Status. Neither the Partnership, the REIT nor any Subsidiary of either is a (i) "holding company," an "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or of an " subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended or (ii) public utility within the meaning of the Federal Power Act, as amended. 8O. Investment Company Status. Neither the Partnership, the REIT nor any Subsidiary of either is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or an "investment adviser" within the meaning of the Investment Advisers Act of 1940, as amended. 8P. Bank Holding Company Status. Neither the Partnership, the REIT nor any Subsidiary of either is a "bank holding company" within the meaning of the Federal Deposit Insurance Act (12 U.S.C. Section 1811, et. seq.), as amended. 8Q. Possession of Material Rights and Intellectual Property. The Partnership, the REIT and their Subsidiaries possess all material franchises, certificates, affiliation agreements, licenses, approvals, registrations, development and other permits and authorizations, and easements, rights of way and similar rights from governmental or political subdivisions, regulatory authorities or other Persons (collectively, "Material Rights") and all Intellectual Property, free from burdensome restriction, that are necessary in the judgement of the Partnership and the REIT in any material respect for the ownership, maintenance and operation of their business, properties and assets, (and those of their Subsidiaries) and neither the Partnership, the REIT nor any Subsidiary of either is in violation of any Material Rights in any material respect nor has infringed upon or violated the Intellectual Property of any third party. From and after the date hereof, all Material Rights and Intellectual Property will be validly issued and will be in full force and effect and will not contain any provision or restriction which could materially affect or impair their value or use. No event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any such Material Rights or Intellectual Property, or materially and adversely affect the rights of the Partnership, the REIT or any Subsidiary of either thereunder. 8R. Solvency. The fair value of the property and other assets of the Partnership is greater than the total amount of its liabilities, including without limitation, contingent liabilities; the present fair saleable value of the property and other assets of the Partnership is not less than the amount that will be required to pay the probable amount of its liabilities as such liabilities become due and payable; the Partnership does not intend to, nor does it believe that it will, incur debts or liabilities beyond its ability to repay as such debts and liabilities mature; and the Partnership's property and other assets do not constitute an unreasonably small amount of capital for the line of business it is engaged in. The fair value of the property and other assets of the REIT is greater than the total amount of its liabilities, including without limitation, contingent liabilities; the present fair saleable value of the property and other assets of the REIT is not less than the amount that will be required to pay the probable amount of its liabilities as such liabilities become due and payable; the REIT does not intend to, nor does it believe that it will, incur debts or liabilities beyond its ability to repay as such debts and liabilities mature; and the REIT's property and other assets do not constitute an unreasonably small amount of capital for the line of business it is engaged in. 8S. Labor and Employee Relations Matters. Except as set forth on Schedule 8S: (i) Neither the Partnership, the REIT nor any Subsidiary of either is or expects to be the subject of any union organizing activity or labor dispute, nor has there been any strike of any kind called, or, to the knowledge of the company, threatened to be called against them or any Subsidiary; and neither the Partnership, the REIT nor any Subsidiary of either has violated any applicable federal or state law or regulation relating to labor or labor practices. (ii) No present or former employees of the Partnership, the REIT or any Subsidiary of either have advanced claims in writing against the Partnership, the REIT or any Subsidiary of either (whether under any foreign, federal, state or common law, through a government agency, under an employment agreement, collective bargaining agreement, personal service or independent contractor agreement or otherwise) that are currently pending for (A) overtime pay, other than overtime pay for the current period; (B) wages, salaries or profit sharing (excluding wages, salaries or profit sharing for the current payroll period); (C) vacations, time off (including without limitation, potential sick leave) or pay in lieu of vacation or time off, other than vacation or time off (or pay in lieu thereof) earned in respect of the current fiscal year; (D) any violation of any statute, ordinance or regulation relating to minimum wages or maximum hours of work; (E) discrimination against employees on any basis; (F) unlawful employment or termination practices; (G) unfair labor practices or alleged violations of collective bargaining agreements; (H) any violation of occupational safety and/or health standards; (I) benefits under any employee plans or compensation arrangement; and (J) breach of any employment, personal service or independent contractor agreement. (iii)There is not pending against the Partnership, the REIT or any Subsidiary of either or, to the knowledge of the Partnership or the REIT threatened, any labor dispute, strike or work stoppage that materially affects or materially interferes with, or may materially affect or materially interfere with, the Partnership's, the REIT's or such Subsidiary's operations after the date hereof. (iv) There is not pending or, to the knowledge or the Partnership or the REIT threatened, any charge or complaint against the Partnership, the REIT or any Subsidiary of either by or before the National Labor Relations Board, any representative thereof, or any comparable foreign or state agency or authority. (v) All collective bargaining agreements to which the Partnership, the REIT or any Subsidiary of either is a party are described in Schedule 8S. 8T. No Improper Payment or Influence. Neither the Partnership, the REIT nor any Subsidiary of either has directly or indirectly paid or delivered any fee, commission or other money or property, or engaged in any lobbying, influencing or other behavior, however characterized, to any agent, government official, regulatory body, governmental agency or other Person, in the United States or any other country, related to the business or operations of the Partnership, the REIT or any of their Subsidiaries, and that the Partnership, the REIT or any Subsidiary knows or has reason to believe to have been illegal under any Federal, state, or local law of the United States or any other country having jurisdiction, or to have been for the purpose of, and to have had the effect of, inducing or encouraging the breach by the recipient thereof of any legal duties, whether as an employee or otherwise to another Person. 8U. Foreign Enemies and Regulations. (i) Neither the issue and sale of the Notes by the Partnership, its use of the proceeds thereof as contemplated by this Agreement, or the issuance of the REIT Guaranties by the REIT will violate (A) any regulations promulgated or administered by the Office of Foreign Assets Control, United States Department of the Treasury, including without limitation, the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban Assets Control Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan Trade Control Regulations, the South African Transaction Regulations, the Iranian Transactions Regulations, the Iraqi Sanctions Regulations, the Soviet Gold Coin Regulations, the Panamanian Transaction Regulations or the Libyan Sanctions Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, (B) the Trading with the Enemy Act, as amended, (C) Executive Orders 8389, 9095, 9193, 12543 (Libya), 12544 (Libya), 12722 or 12724 (Iraq), 12775 or 12779 (Haiti), or 12959 (Iran), as amended, of the President of the United States or (D) any rule, regulation or executive order issued or promulgated pursuant to the laws or regulations described in the foregoing clauses (A) -(C). (ii) None of the transactions contemplated in this Agreement (including without limitation, the use of the proceeds from the sale of the Notes) will violate the Comprehensive Anti-Apartheid Act of 1986, or any rules or regulations promulgated thereunder. 8V. Interstate Commerce Act. Neither the Partnership, the REIT nor any Subsidiary of either is a "rail carrier" or a person controlled by or Subsidiary with a "rail carrier" within the meaning of Title 49, U.S.C., and neither the Partnership, the REIT nor any Subsidiary of either is a "carrier" to which 49 U.S.C. Section 11301(b)(1) is applicable. 8W. Due Authorization, etc. This Agreement, the REIT Guaranties, the Notes and the other Loan Documents have been duly authorized by all necessary corporate action on the part of the Partnership and the REIT, and this Agreement constitutes, and upon execution and delivery thereof each Note and each of the REIT Guaranties will constitute, a legal, valid and binding obligation of the Partnership and the REIT, enforceable against the Partnership and the REIT in accordance with their respective terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8X. Publicly Traded Debt. The Notes and the REIT Guaranties are not of the same class as securities or other equity interests of the Partnership or the REIT, if any, listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. 8Y. Disclosure. Neither this Agreement nor any other document, certificate or statement furnished to you by or on behalf of the Partnership or the REIT in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Partnership, the REIT or any of its Subsidiaries which materially adversely affects or in the future may (so far as the Partnership or the REIT can now foresee) materially adversely affect the business, property or assets, or financial condition of the Partnership, the REIT or any of their Subsidiaries and which has not been set forth in this Agreement or in the other documents, certificates and statements furnished to you by or on behalf of the Partnership and the REIT prior to the date hereof in connection with the transactions contemplated hereby. 9. REPRESENTATIONS OF THE PURCHASER. You represent as follows: 9A. Nature of Purchase. You are not acquiring the Notes to be purchased by you hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of your property shall at all times be and remain within your control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Partnership is not required to register the Notes. 9B. Source of Funds. No part of the funds being used by you to pay the purchase price of the Notes being purchased by you hereunder constitutes assets allocated to any separate account maintained by you. The source of funds from which this investment is to be made is the general account of The Prudential Insurance Company of America, which is not considered to be plan assets for purposes of the prohibited transaction rules of Section 406 of ERISA pursuant to Department of Labor Interpretive Bulletin 75-2. 10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement, the terms defined in paragraph 10A(or within the text of any other paragraph) shall have the respective meanings specified therein and all accounting matters shall be subject to determination as provided in paragraph 10B. 10A. Terms. "Affiliate" shall mean, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, that Person. A Person shall be deemed to control a legal entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such legal entity, whether through the ownership of voting securities, by contract or otherwise. "Annual Debt Service Charge" means, for any period and with respect to any Person, the principal amortization plus interest expense for such period, including, without duplication, (i) all amortization of debt discount, (ii) all accrued interest, (iii) all capitalized interest, and (iv) the interest component of Capitalized Lease Obligations. "Annual Percentage of Earnings Capacity Transferred" shall mean, with respect to any four (4) consecutive fiscal quarter period, the sum of a Person's Percentages of Earnings Transferred for each asset that is Transferred by such Person during such period. "Annual Percentage of Net Worth Transferred" shall mean for any Person, with respect to any four (4) consecutive fiscal quarter period, the sum of that Person's Percentages of Net Worth Transferred for each asset that is Transferred by such Person during such period. "Bankruptcy Law" shall have the meaning specified in clause (viii) of paragraph 7A. "Business Day" shall mean any day except Saturday, Sunday, or any other day on which banks in Atlanta, Georgia are required or authorized to close. "Capitalized Lease Obligation" shall mean any rental obliga tion which, under GAAP, would be required to be capitalized on the books of the Person having such obligation, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with GAAP. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Collateral" shall mean your interest in real and personal property of the Converted Borrowers securing the Converted Loans. "Computing Holder" shall mean, with respect to the Notes, as of the date of acceleration pursuant to paragraph 7A, the holder with the highest aggregate unpaid principal amount of Notes, which holder is willing to act in such capacity. In case two (2) or more holders of Notes would, by reason of holding Notes in the same aggregate unpaid principal amount, qualify as the Computing Holder as aforesaid as of any date of determination, the Computing Holder shall be the qualifying holder or holders as mutually determined by all such qualifying holders. For purposes of such determination, Notes then held by any holder and its Subsidiaries and Affiliates shall be aggregated. "Consolidated" shall mean the consolidation of the accounts of the Partnership or the REIT (as the case may be) and its Subsidiaries in accordance with GAAP, including principles of consolidation, consistent with those applied in the preparation of the Consolidated financial statements referred to in paragraph 8B. "Consolidated Income Available for Debt Service" for any period and with respect to any Person means Consolidated Net Income for such period, plus amounts which have been deducted and minus amounts which have been added in calculation of such Person's Consolidated Net Income for (without duplication) (i) interest expense on debt, (ii) provision for taxes based on income, (iii) amortization of debt discount and deferred financing costs, (iv) provisions for gains and losses on properties, (v) property depreciation and amortization, (vi) the effect of any non-cash items resulting from a change in accounting principles in determining Consolidated Net Income, and (vii) amortization of deferred charges. "Consolidated Net Income (Loss)" shall mean, as to any period and with respect to any Person, Consolidated gross revenues less all operating and non-operating expenses on a Consolidated basis for such period, including all charges of a proper character (including current and deferred taxes on income, provision for taxes on unremitted foreign earnings which are included in gross revenues, and current additions to reserves), but not including in gross revenues the following: (i) any gains (net of expenses and taxes applicable thereto) in excess of losses resulting from the Transfer of capital assets (i.e., assets other than current assets); (ii) any gains resulting from the write-up of assets; (iii) any equity of such Person in the undistributed earnings (but not losses) of any corporation which is not a Subsidiary; (iv) undistributed earnings of any Subsidiary to the extent that such Subsidiary is not at the time permitted to (A) make or pay dividends to any Subsidiary parent thereof or to such Person, (B) repay intercompany loans or advances to any Subsidiary parent thereof or to such Person,(C) convert such earnings into U.S. dollars or repatriate earnings to any Subsidiary parent thereof or such Person or (D) otherwise Transfer property or other assets to any Subsidiary parent thereof or such Person, whether by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary; (v) any earnings or losses of any Person acquired by such Person or any Subsidiary thereof through purchase, merger, consolidation or otherwise for any fiscal period prior to the fiscal period in which the acquisition occurs; (vi) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary; (vii) gains or losses from the acquisition of securities or the retirement or extinguishment of Debt; (viii) gains on collections from insurance policies or settlements; (ix) any income or gain during such period from any change in accounting principles, from any discontinued operations or the disposition thereof, from any extraordinary items or from any prior period adjustments, (x) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period; (xi) in the case of a successor to such Person by consolidation or merger or as a transferee of its assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. If the preceding calculation results in a number less than zero, such amount shall be considered a Consolidated Net Loss. "Consolidated Tangible Net Worth" shall mean, as at any time of determination thereof and with respect to any Person, such Person's Consolidated equity, less , on a Consolidated basis (i) the book value of all such Person's Intangibles, (ii) any net gains or losses attributed to cumulative translation adjustments, (iii) Minority Interests of such Person. "Converted Loan Borrowers" shall mean Persons (other than the Partnership and the REIT) that are obligated on the Converted Loans. "Converted Loan Rate" shall mean the interest rate on the Converted Loans as of the Conversion Date. "Converted Loans" shall mean those of the Convertible Loans with respect to which the Partnership provides to you sixty (60) days written notice of its intention to convert such loans to unsecured loans through the sale to you of the Notes pursuant to the terms of this Agreement, provided that (i) at least $43 million in principal amount of Convertible Loans are included in such notice, (ii) Prudential Loan # 6 100 628 (as further described in the definition of Convertible Loans) or all five (5) of Prudential Loans # 6 102 394, 6 102 395, 6 102 395, 6 102 437 and 6 107 438 are included in such notice, (iii) with respect to any Convertible Loan, the entirety of such loan is indicated as being converted, and (iv) all of the conditions to conversion outlined herein have been satisfied. "Conversion Date" shall mean the day agreed to between you and the Partnership upon which the purchase and sale of the Notes will be closed and upon which all of the conditions to closing shall be either satisfied or waived in writing. "Conversion Maturity Date" means December 15, 2004. "Convertible Loans" shall mean the loans from you that are evidenced by (i) that certain Promissory Note, dated July 18, 1994, from the Partnership to you in an original principal amount of $43,400,000, and such other documents and instruments executed and delivered in connection therewith (Prudential Loan # 6 100 628), (ii) that certain Promissory Note, dated June 21, 1993, from the Partnership (as successor by merger) to you in an original principal amount of $4,700,000, and such other documents and instruments executed and delivered in connection therewith (Prudential Loan # 6 100 370), (iii) that certain Promissory Note, dated August 11, 1993, from Mid-America Apartments of Texas, L.P. to you in an original principal amount of $8,000,000, and such other documents and instruments executed and delivered in connection therewith (Prudential Loan # 6 100 383), and (iv)(a) that certain Amended and Restated Promissory Note, dated of even date herewith, from Paddock Club Jacksonville, A Limited Partnership, to you in an original principal amount of $6,063,000.00, together with all documents evidencing, securing or relating to the loan evidenced thereby (Prudential Loan # 6 102 395); (b) that certain Amended and Restated Promissory Note, dated of even date herewith, from Paddock Club Lakeland, a Limited Partnership, to you in an original principal amount of $5,751,000.00, together with all documents evidencing, securing or relating to the loan evidenced thereby (Prudential Loan # 6 102 396); (c) that certain Amended and Restated Promissory Note, dated of even date herewith, from Paddock Club Lakeland Phase II, A Limited Partnership, to you in an original principal amount of $8,123,000.00, together with all documents evidencing, securing or relating to the loan evidenced thereby (Prudential Loan # 6 102 437); (d) that certain Promissory Note, dated of even date herewith, from the Partnership to you in the amount of $19,510,000.00, together with all documents evidencing, securing or relating to the loan evidenced thereby (Prudential Loan # 6 102 394); and (e) that certain Consolidated, Amended and Restated Promissory Note, dated of even date herewith, from Paddock Club Jacksonville Phase II, A Limited Partnership, to you, in an original principal amount of $8,053,000.00, together with all documents evidencing, securing or relating to the loan evidenced thereby (Prudential Loan # 6 102 395). "Current Debt" shall mean, with respect to any Person, all Indebtedness of such Person for borrowed money which by its terms or by the terms of any instrument or agreement relating thereto matures on demand or within one (1) year from the date of the creation thereof and is not directly or indirectly renewable or extendible at the option of the debtor to a date more than one (1) year from the date of the creation thereof, provided that Indebtedness for borrowed money outstanding under a revolving credit or similar agreement which obligates the lender or lenders to extend credit over a period of more than one (1) year shall constitute Funded Debt and not Current Debt, even though such Indebtedness by its terms matures on demand or within one (1) year from the date of the creation thereof. "Debt" shall mean Current Debt and Funded Debt. "Default" shall mean (i) any of the events specified in paragraph 7A, whether or not any requirement for such event to become an Event of Default has been satisfied, and (ii) any event, act or condition which, with the giving of notice of lapse of time, or both, would constitute an Event of Default. "Environmental and Safety Laws" shall mean all laws relating to pollution, the release or other discharge, handling, disposition or treatment of Hazardous Materials and other substances or the protection of the environment or of employee health and safety, including without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et. seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 7401 et. seq.), the Clean Air Act (42 U.S.C. Section 401 et. seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et. seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et. seq.) and the Emergency Planning and Community Right-To-Know Act (42 U.S.C. Section 11001 et. seq.), each as the same may be amended and supplemented, and such other similar laws as may be enacted by the Congress of the United States. "Environmental Costs and Liabilities" shall mean, as to any Person, all liabilities, obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, treble damages, contribution, cost recovery, costs and expenses (including all fees, disbursements and expenses of counsel, expert and consulting fees, and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, permit, order or agreement with any Federal, state or local governmental authority or other Person, arising from environmental, health or safety conditions, or the release or threatened release of a contaminant, pollutant or Hazardous Material into the environment, resulting from the operations of such person or its Subsidiaries, or breach of any Environmental and Safety Law or for which such Person or its Subsidiaries is otherwise liable or responsible. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" shall mean any Person which is a member of the same controlled group of Persons as the Partnership or the REIT (as the case may be) within the meaning of section 414(b) of the Code, or any trade or business which is under common control with the Partnership or the REIT within the meaning of section 414(c) of the Code. "Event of Default" shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Full Rating Category" shall mean (i) with respect to S&P, any of the following categories: BB, B, CCC and C, (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca and C and (iii) with respect to any other Rating Agency, the equivalent of any such category of S&P or Moody's used by such other Rating Agency. In determining whether the rating of the Notes has decreased by the equivalent of one Full Rating Category, gradations within Full Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or the equivalent gradation for another Rating Agency) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to B+ will constitute a decrease of one Full Rating Category). "Funded Debt" shall mean, with respect to any Person, all Indebtedness of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, more than one (1) year from, or is directly or indirectly renewable or extendible at the option of the debtor to a date more than one year (including an option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year) from, the date of the creation thereof, including current maturities of long-term debt that appear as current liabilities in accordance with GAAP. "GAAP" shall have the meaning set forth in paragraph 10C. "Good Faith Contest" shall mean, with respect to any tax, assessment, Lien, obligation, claim, liability, judgment, injunction, award, decree, order, law, regulation, statute or similar item, any challenge or contest thereof by appropriate proceedings timely initiated in good faith for which adequate reserves therefor have been taken in accordance with GAAP. "Guarantee" shall mean, with respect to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, any such obligation in effect guaranteed by such Person through any agreement (contingent or otherwise) to: (i) purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), (ii) maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or (iii) make payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or non-furnishing thereof, (iv) rent or lease (as lessee) any real or personal property if such contract (or any related document) provides that the obligation to make payments thereunder is absolute and unconditional under conditions not customarily found in commercial leases then in general use or requires that the lessee purchase or otherwise acquire securities or obligations of the lessor, or (v) sell or provide materials, supplies or other property or services, if such agreement (or any related document) requires that payment for such materials, supplies or other property or services, shall be subordinated to any indebtedness (of the purchaser or user of such materials, supplies or other property or the Person entitled to the benefit of such services) owed or to be owed to any Person, in any such case if the purpose, intent or effect of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. The amount of any Guarantee shall be equal to the outstanding principal amount of the obligation guaranteed or such lesser amount to which the maximum exposure of the guarantor shall have been specifically limited. "Hazardous Materials" shall mean (i) any material or substance defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous material," "toxic substances" or any other formulations intended to define, list or classify substances by reason of their deleterious properties, (ii) any oil, petroleum or petroleum derived substance, (iii) any flammable substances or explosives, (iv) any radioactive materials, (v) asbestos in any form, (vi) electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million, (vii) pesticides or (viii) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental agency or authority or which may or could pose a hazard to the health and safety of persons in the vicinity thereof. "including" shall mean, unless the context clearly requires otherwise, "including without limitation". "Indebtedness" shall mean, with respect to any Person and without duplication (i) all items (excluding items of contingency reserves or of reserves for deferred income taxes) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as of the date on which Indebtedness is to be determined,(ii) all indebtedness secured by any Lien on, or payable out of the proceeds or production from, any property or asset owned or held by such Person, whether or not the indebtedness secured thereby shall have been assumed, (iii) all indebtedness of third parties, including joint ventures and partnerships of which such Person is a venturer or general partner, recourse to which may be had against such Person, (iv) redemption obligations in respect of mandatorily redeemable Preferred Stock; and (v) all indebtedness and other obligations of others with respect to which such Person has become liable by way of a Guarantee. "Institutional Investor" shall mean any insurance company, commercial, investment or merchant bank, finance company, mutual fund, registered money or asset manager, savings and loan association, credit union, registered investment advisor, pension fund, investment company, licensed broker or dealer, "qualified institutional buyer" (as such term is defined under Rule 144A promulgated under the Securities Act, or any successor law, rule or regulation) or "accredited investor" (as such term is defined under Regulation D promulgated under the Securities Act, or any successor law, rule or regulation). "Intangibles" shall mean, without duplication, all Material Rights, Intellectual Property and operating agreements, treasury stock, deferred or capitalized research and development costs, goodwill (including any amounts, however designated, representing the cost of acquisition of business and investments in excess of the book value thereof), unamortized debt discount and expense, any write-up of asset value after he Conversion Date and any other amounts reflected in contra-equity accounts, and any other assets treated as intangible assets under GAAP. "Intellectual Property" shall mean all patents, trademarks, service marks, trade names, copyrights, brand names, mechanical or technical processes and paradigms, know-how, and similar intellectual property and applications, licenses and similar rights in respect of the same. "Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's or by any other Rating Agency selected as provided herein. "Investments" shall have the meaning provided in paragraph 6C(3). "Lien" shall mean any mortgage, pledge, security interest, encumbrance, minimum or compensating deposit arrangement, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. "Loan Documents" shall mean this Agreement, the Notes, the REIT Guaranties, and all other documents or agreements executed or delivered in connection with the issuance of the Notes hereunder and the closing of the transactions contemplated hereby. "Material Adverse Effect" shall mean (i) a material adverse effect on the business, assets, liabilities, operations, prospects or condition, financial or otherwise, of a Person, taken as a whole, (ii) material impairment of a Person to perform any of their obligations under the Agreement, the Notes or the REIT Guaranties or (iii) material impairment of the validity or enforceability or the rights of, or the benefits available to, the holders of any of the Notes under this Agreement, the REIT Guaranties or the Notes. "Material Rights" shall have the meaning provided in paragraph 8Q. "Minority Interests" shall mean any equity interests in an Subsidiary that are not owned by the Partnership, the REIT or a Wholly Owned Subsidiary of either. "Moody's" shall mean Moody's Investors Services, Inc., including the NCO/Moody's Commercial Division, or any successor Person. "Multiemployer Plan" shall mean any Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "Nationally Recognized Rating Agency" shall mean S & P, Moody's, Duff & Phelps Credit Rating Co., and Fitch Investors Service, Inc., and if any of those agencies whose rating was previously used to satisfy the rating covenant ceases to issue such ratings generally, another rating agency of similar national status as may be reasonably determined by you. "Net Worth" shall mean, as of any date and with respect to any Person, such Person's net worth as determined in accordance with GAAP and on a Consolidated basis. "Officer's Certificate" shall mean a certificate signed (i) in the name of the Partnership by its general partner, (ii) in the name of the REIT, by its President, Vice President or Secretary, and (iii) in the name of any Subsidiary, by a general partner or its President (as the case may be). "Partnership" shall mean Mid-America Apartments, L.P. "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any successor or replacement entity thereto under ERISA. "Permitted Investments" shall have the meaning set forth in paragraph 6C(2). "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a limited liability partnership, any other entity having limited liability for its owners under the law of its creation, a trust, an unincorporated organization and a government or any department or agency thereof. "Plan" shall mean any "employee pension benefit plan" (as such term is defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Partnership, the REIT or any ERISA Affiliate of either. "Preferred Stock" shall mean any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "Prepayment Premium" means an amount equal to the greater of (a) one percent (1%) of the principal amount being prepaid multiplied by the quotient of the number of full months remaining until the Conversion Maturity Date divided by the number of full months comprising the original term (on a monthly basis) of the Note, or (b) the Present Value of the Loan (defined below) less the amount of principal and accrued interest (if any) being prepaid, calculated as of the prepayment date; unless prepayment occurs on an interest payment date for the Note (each, a "Due Date"), the actual number of days until the next Due Date will be used to discount during that partial month; the "Present Value of the Loan" shall be determined by discounting all scheduled payments remaining to the Conversion Maturity Date attributable to the amount being prepaid at the Discount Rate (defined below); the "Discount Rate" is the rate which, when compounded monthly, is equivalent to the Treasury Rate (defined below), when compounded semi-annually; the "Treasury Rate" is the semi-annual yield on the Treasury Constant Maturity Series with maturity equal to the remaining weighted average life of the loan evidenced by this Note, for the week prior to the prepayment date, as reported in Federal Reserve Statistical Release H.15 - Selected Interest Rates, conclusively determined by Holder (absent a clear mathematical calculation error) on the prepayment date, and the rate will be determined by linear interpolation between the yields reported in Release H.15, if necessary; provided, if Release H.15 is no longer published, the holders of the Notes shall select a comparable publication to determine the Treasury Rate. "Priority Debt" shall mean, without duplication and as at any time of determination thereof, the sum of the following items: (i) Debt of the Partnership or the REIT secured by Liens (other than as described in clauses (i), (ii), (iii), (iv), (vi), (viii), (ix)], (x), (xii), (xiii), (xiv), (xv) and (xvii)(but only to the extent renewing, refunding or extending Liens of the type specified in this parenthetical)) in the definition of Permitted Liens); and (ii) Debt or Preferred Stock of any Subsidiary to any Person other than the Partnership, the REIT or a Wholly Owned Subsidiary of either. "Property Income" shall mean as for any date with respect to any Person such Person's Consolidated revenues from rents and other direct property operations (excluding interest income)on a Consolidated basis minus direct operating expenses of the property (excluding depreciation and interest expense)on a Consolidated Basis minus a management fee equal to four percent (4%) of property revenues on a Consolidated basis minus a capital reserve of three hundred dollars ($300) per unit on a Consolidated basis. "Rating Agency" shall mean any of S&P, Moody's, Duff & Phelps Credit Rating Co., and Fitch Investors Service, Inc. or any other rating agency of similar national status as may be reasonably determined by you "REIT" shall mean Mid-America Apartment Communities, Inc. "REIT Guaranty" and "REIT Guaranties" shall have the meaning attributed to them in paragraph 3B(xii) hereof. "Related Party" shall mean (i) any Shareholder, general partner or limited partner,(ii) any executive officer, director, agent, managing agent or employee, (iii) all persons to whom such Persons are related by blood, adoption or marriage and (iv) all Subsidiaries of the foregoing Persons. "Reportable Event" shall mean any of the events set forth in section 4043(b) of ERISA or the regulation thereunder, a withdrawal from a plan described in Section 4063 of ERISA, or a cessation of operations described in section 4062(e) of ERISA. "Required Holder(s)" shall mean the holder or holders of at least two-thirds (66-2/3%) of the aggregate principal amount of the Notes from time to time outstanding. "Responsible Officer" shall mean (i) with respect to a limited partnership, a general partner, (ii) with respect to a limited liability company, a managing agent, (iii) with respect to a corporation, the chief executive officer, chief operating officer, chief financial officer or chief accounting officer or any other officer involved principally in its financial administration or its controllership function, or (iv) with respect to any other Person that is a legal entity, a person with similar responsibilities to those listed in (i) through (iii). "Restricted Investment" shall mean any Investment other than a Permitted Investment. "Restricted Payments" shall mean any of the following: (i) any dividend on any class of the Partnership's, the REIT's or any Subsidiary's equity interests; (ii) any other distribution on account of any class of the Partnership's, the REIT's or any Subsidiary's equity interests; (iii) any redemption, purchase or other acquisition, direct or indirect, of any equity interest of the Partnership, the REIT or any Subsidiary of either; (iv) any unscheduled payment of principal or interest or premium of, or retirement, redemption, purchase or other acquisition of, any Subordinated Debt, including convertible subordinated debt; (v) any Restricted Investment. "S&P" shall mean Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, or any successor thereto. "Securities Act" shall mean the Securities Act of 1933, as amended. "Shareholder" shall mean and include any Person who owns, beneficially or of record, directly or indirectly, at any time during any year with respect to which a computation is being made, either individually or together with all persons to whom such Person is related by blood, adoption or marriage, 5% or more of the outstanding equity interests of a Person. "Significant Holder" shall mean (i) you, so long as you shall hold (or be committed under this Agreement to purchase) any Note, or (ii) any other holder of at least five percent (5%) of the aggregate principal amount of the Notes from time to time outstanding. "Subsidiary" shall mean, with respect to any Person, any second Person at least fifty percent (50%) of the equity interests of which shall, at the time as of which any determi nation is being made, be owned by such Person, either directly or through Subsidiaries. "Total Assets" shall mean, as of any date and with respect to any Person, the sum of (without duplication) such Person's (i) Undepreciated Real Estate Assets and (ii) all other assets (excluding accounts receivable and intangibles) of such Person on a Consolidated basis. "Total Unencumbered Assets" shall mean, as of any date and with respect to any Person, the sum of (without duplication) such Person's (i) Undepreciated Real Estate Assets which are not subject to a Lien and (ii) all other assets (excluding accounts receivable and intangibles) of such Person on a Consolidated basis not subject to a Lien. "Transfer" shall mean, with respect to any item, the sale, exchange, conveyance, lease, transfer or other disposition of such item. "Transferee" shall mean any direct or indirect transferee of all or any part of any Note purchased or to be purchased by you under this Agreement or any interest in your rights and obligations under this Agreement. "Undepreciated Real Estate Assets" as of any date shall mean such Person's cost (original cost plus capital improvements) of its real estate assets on such date net of any write downs or impairments before depreciation and amortization, all calculated on a Consolidated basis. "Unsecured Debt" means debt which is not secured by a lien on any property or assets plus the amount of recourse secured debt (or guaranteed debt) in excess of the undepreciated book value of the applicable security. "Wholly Owned Subsidiary" shall mean any Person, all of the equity interests of every class of which is, at the time as of which any determination is being made, owned by the Partnership or the REIT, as the case may be, either directly or through Wholly Owned Subsidiaries, and which has outstanding no options, warrants, rights or other rights entitling the holder thereof (other than the Partnership, the REIT or a Wholly Owned Subsidiary of either) to acquire any equity interests of such Person. 10C. Accounting and Legal Principles, Terms and Determinations. All references in this Agreement to "GAAP" shall mean generally accepted accounting principles, as in effect in the United States from time to time. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all unaudited financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the most recent audited consolidated financial statements of the Partnership, the REIT and their Subsidiaries delivered pursuant to paragraph 5A(i) or (ii) or, if no such statements have been so delivered, the most recent audited financial statements referred to in clause (i) of paragraph 8B. Any reference herein to any specific citation, section or form of law, statute, rule or regulation shall refer to such new, replacement or analogous citation, section or form should citation, section or form be modified, amended or replaced. 11. MISCELLANEOUS. 11A. Note Payments. The Partnership agrees that, so long as you shall hold any Note, it will make payments of principal of, interest on and any Prepayment Premium payable with respect to such Note, which comply with the terms of this Agreement, by wire transfer of immediately available funds for credit (not later than 12:00 noon, New York City time, on the date due) to your account or accounts as specified by the applicable Noteholder, or such other account or accounts in the United States as you may designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. You agree that, before disposing of any Note, you will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. Upon written request of the Partnership made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Partnership at its principal executive office. The Partnership agrees to afford the benefits of this paragraph 11A to any Transferee which shall have made the same agreement as you have made in this paragraph 11A. 11B. Expenses. The Partnership and the REIT agree, whether or not the transactions contemplated hereby shall be consummated, to pay, and save you and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including: (i) (A) all stamp and documentary taxes and similar charges, (B) costs of obtaining a private placement number for the Notes and (C) reasonable fees and expenses of brokers, agents, dealers, investment banks or other intermediaries or placement agents, in each case as a result of the execution and delivery of this Agreement or the issuance of the Notes; (ii) document production and duplication charges and the reasonable fees and expenses of any special counsel engaged by you or such Transferee in connection with (A) this Agreement and the transactions contemplated hereby (B) and any subsequent proposed waiver, amendment or modification of, or proposed consent under, this Agreement, whether or not such the proposed action shall be effected or granted; (iii) the reasonable costs and expenses, including attorneys' and financial advisory fees, incurred by you or such Transferee in enforcing (or determining whether or how to enforce) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the transactions contemplated hereby or by reason of your or such Transferee's having acquired any Note, including, without limitation, costs and expenses incurred in any workout, restructuring or renegotiation proceeding or bankruptcy case; (iv) any judgment, liability, claim, order, decree, cost, fee, expense, action or obligation resulting from the consummation of the transactions contemplated hereby, including the use of the proceeds of the Notes by the Partnership; and (v) any Environmental Costs and Liabilities ; provided that the Partnership and the REIT shall not be responsible for (1) any of your expenses or those of a Transferee incurred solely in connection with any transfer of any Note; (2) the fees and expenses of more than one counsel for the holders of the Notes, except to the extent the Required Holders determine that (a) either legal advice is needed in a jurisdiction other than that specified in paragraph 11K or (b) there exists a conflict of interest amongst the holders of the Notes; and (3) any fees, costs or expenses incurred with respect to any amendment that is proposed prior to the occurrence of a Default or Event of Default by a holder of the Notes rather than the Partnership, unless such holder shall have consulted with the Partnership and the REIT prior to proceeding with such amendment. The obligations of the Partnership and the REIT under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by you or any Transferee and the payment of any Note. 11C. Consent to Amendments. This Agreement may be amended, and the Partnership may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Partnership shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) except that, without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to this Agreement shall change the maturity of any Note, or change the principal of, or the rate, method of computation or time of payment of interest on or any Prepayment Premium payable with respect to any Note, or affect the time, amount or allocation of any prepayments, or change the proportion of the principal amount of the Notes required with respect to any consent, amendment, waiver or declaration. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Partnership, the REIT and the holder of any Note nor any delay in exercising any rights hereunder or under any Note or the REIT Guaranties shall operate as a waiver of any rights of any holder of such Note or the REIT Guaranties. As used herein and in the Notes, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. The Notes are issuable as registered notes without coupons in denominations of at least $1,000,000, except as may be necessary to (i) reflect any principal amount not evenly divisible by $1,000,000 or (ii) enable the registration of transfer by a holder of its entire holding of Notes. The Partnership shall keep at its principal office a register in which the Partnership shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Partnership, the Partnership shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Partnership. Whenever any Notes are so surrendered for exchange, the Partnership shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's indemnity agreement (which shall be unsecured if such holder is an insurance company rated A or better by A.M. Best Company or is an Institutional Investor whose senior debt securities are rated BBB- or Baa3 or better by S&P or Moody's, respectively, and, otherwise, which shall be unsecured unless the Partnership requests in writing that such indemnity agreement be secured), or in the case of any such mutilation upon surrender and cancella tion of such Note, the Partnership will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. The Partnership shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 11E. Persons Deemed Owners; Participations. Prior to due presentment for registration of transfer, the Partnership may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of, interest on and any Prepayment Premium payable with respect to such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Partnership shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion, provided that any such participation shall be in a principal amount of at least $100,000. Notwithstanding anything to the contrary herein, upon your sale and transfer from time to time of all or any portion of a Converted Loan prior to the Conversion Date, such sale shall be deemed an assignment to and assumption by such purchaser of your obligation to purchase Notes hereunder in an amount equal to the principal amount of such Converted Loan so purchased, and you shall have no further obligation hereunder to purchase those Notes. 11F. Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement, the Notes, and the REIT Guaranties, the transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of you or any Transferee. Subject to the preceding sentence, this Agreement, the Notes and the REIT Guaranties embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. No provision of this Agreement shall be interpreted for or against any party because that party or its legal representative drafted the provision. 11G. Successors and Assigns. All covenants and other agreements in this Agreement contained by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. Nothing express or implied in this Agreement is intended, nor shall be construed, to confer (i) any legal rights, remedies, obligations, or liabilities, legal or equitable, including the right to receive funds, on any Person other than the parties to this Agreement and their permitted successors and assigns, or (ii) otherwise constitute any Person a third party beneficiary under or by reason of this Agreement. 11H. Notices. All written communications provided for hereunder shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to you, addressed to you at your address specified for such communications at the address specified above, or at such other address as you shall have specified to the Partnership in writing, (ii) if to any other holder of any Note, addressed to such other holder at such address as such other holder shall have specified to the Partnership in writing or, if any such other holder shall not have so specified an address to the Partnership, then addressed to such other holder in care of the last holder of such Note which shall have so specified an address to the Partnership, and (iii) if to the Partnership or the REIT, addressed to it at 6584 Poplar Avenue, Memphis, TN 38138, Attention: Mr. Simon R.C. Wadsworth, or at such other address as the Partnership or the REIT shall have specified to the holder of each Note in writing; provided, however, that any such communication to the Partnership or the REIT may also, at the option of the holder of any Note, be delivered by any other means either to the Partnership or the REIT at its address specified above or to any general partner of the Partnership. Notice given pursuant to this paragraph 11H shall be deemed delivered (A) five (5) Business Days after deposit in the U.S. mail, if by first class mail and (B) so long as the sending party retains a confirmation or similar number, the date specified by the delivery service as the promised delivery date, in the case of overnight delivery. 11I. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall be included in the computation of the interest payable on such Business Day. 11J. Satisfaction Requirement. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to you or to the Required Holder(s), the determination of such satisfaction shall be made by you or the Required Holder(s), as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 11K. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Georgia. 11L. Consent to Jurisdiction; Waiver or Immunities. The Partnership and the REIT hereby irrevocably submit to the jurisdiction of any Georgia state or Federal court sitting in Atlanta, Georgia, in any action or proceeding arising out of or relating to this Agreement, and the Partnership and the REIT hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in Georgia state or Federal court. The Partnership and the REIT hereby irrevocably waive, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Partnership and the REIT agree and irrevocably consent to the service of any and all process in any such action or proceeding by the mailing, by registered or certified U.S. mail, or by any other means or mail that requires a signed receipt, of copies of such process to CT Corporation System at 1201 Peachtree Street, NE, Atlanta, Georgia 30361. The Partnership and the REIT agree that a final judgement in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this paragraph 11L shall affect the right of any holder of the Notes to serve legal process in any other manner permitted by law or affect the right of any holder of the Notes to bring any action or proceeding against the Partnership and/or the REIT or their property in the courts of any other jurisdiction. To the extent that the Partnership or the REIT has or hereafter may acquire immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgement, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Partnership and the REIT hereby irrevocably waive such immunity in respect of its obligations under this agreement. 11M. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11N. Descriptive Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11O. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. 11P. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is prohibited by any one of such covenants, the fact that it would be permitted by an exception to, or otherwise be in compliance within the limitations of, another covenant shall not (i) avoid the occurrence of a Default or Event of Default if such action is taken or such condition exists or (ii) in any way prejudice an attempt by the holders to prohibit (through equitable action or otherwise) the taking of any action by the Partnership, the REIT or an Subsidiary of either which would result in a Default or Event of Default. 11Q. Mandatory Arbitration. The Partnership, the REIT and you agree that all controversies, claims or disputes between them arising out of this Agreement or any agreements or instruments relating hereto or delivered in connection herewith, or relating to the transaction contemplated by the Agreement, whether individual, joint or class in nature, including, without limitation, contract, tort, or other controversies, claims or disputes shall be arbitrated in accordance with the Commercial Arbitration Rules of the American Arbitration Association. No act to take or dispose of any collateral, or to exercise any right in connection with collateral, or to seek to obtain provisional or ancillary relief from a court of competent jurisdiction before, during or after the pendency of any arbitration proceeding conducted pursuant to this arbitration agreement, including, without limitation, by judicial foreclosure, by power of sale on a deed of trust or mortgage, obtaining or executing a writ of attachment, or the exercise of any rights relating to personal property, including, without limitation, taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code as codified under applicable law, shall constitute a waiver of this arbitration agreement. Either the Partnership, the REIT or you may apply to a court of competent jurisdiction for an injunction, the appointment of a receiver, declaratory relief or any provisional or ancillary relief referred to in the preceding sentence. Any statutes of limitations or doctrines of estoppel, waiver, laches or similar statutes or doctrines, which would otherwise be applicable in a judicial action brought by a party shall be applicable in any arbitration proceeding hereunder. Any controversies, claims or disputes concerning the lawfulness or reasonableness of any act, or the exercise of any right concerning collateral, including, without limitation any claim to rescind, reform or otherwise modify any agreements or instruments relating hereto or delivered in connection herewith, shall also be arbitrated; provided however, that no arbitrator shall have the right or power to enjoin or restrain any act of any party. Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction. The Federal Arbitration Act, U.S.C. 1-14, shall apply to the construction and interpretation of this arbitration provision. 11R. Waiver of Jury Trial. The Partnership, the REIT and the holders of the Notes agree to waive their respective rights to a jury trial of any claim or cause of action based upon or arising out of this Agreement, the Notes, or any dealings between them relating to the subject matter of this transaction and the lender/borrower relationship that is being established. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. The holders of the Notes, the Partnership and the REIT each acknowledge that this waiver is a material inducement to enter into this business relationship, that each has already relied on the waiver in entering into this Agreement, and that each will continue to rely on the waiver in their related future dealings. The holders of the Notes, the Partnership and the REIT further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENT, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE NOTES, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE NOTES. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 11S. Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Partnership and the REIT agree and stipulate that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise by admissible in evidence. This paragraph 11S shall not prohibit the Partnership, the REIT or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 11T. Severalty of Obligations. The sales of Notes to the Purchasers are to be several sales, and the obligations of the Purchasers under this Agreement are several obligations. No failure by any Purchaser to perform its obligations under this Agreement shall relieve any other Purchaser or the Partnership of any of its obligations hereunder, and no Purchaser shall be responsible for the obligations of, or any action taken or omitted by, any other Purchaser hereunder. 11U. Independent Investigation. Each Purchaser has made its own independent investigation of the condition (financial and otherwise), prospects and affairs of the Partnership, the REIT and their Subsidiaries in connection with its purchase of the Notes hereunder and has made and shall continue to make its own appraisal of the creditworthiness of the Partnership. No Holder shall have any duty or responsibility to any other Holder, either initially or on a continuing basis, to make any such investigation or appraisal or to provide any credit or other information with respect thereto. No Holder is acting as agent or in any other fiduciary capacity on behalf of any other Holder. 11V. Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person. If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Partnership, whereupon this letter shall become a binding agreement between the Partnership, the REIT and you. Very truly yours, MID-AMERICA APARTMENTS, L.P., a Tennessee limited partnership By: Mid-America Apartment Communities, Inc., a Tennessee corporation, General Partner By: /s/ Simon R.C. Wadsworth Name: Simon R. C. Wadsworth Title: CFO MID-AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation, General Partner By: /s/ Simon R. C. Wadsworth Name: Simon R. C. Wadsworth Title: CFO [SIGNATURES CONTINUED ON NEXT PAGE] [SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT] The foregoing Agreement is hereby accepted and agreed to as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Daniel C. Moore Title: Daniel C. Moore Vice President [SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT] List of Schedules for Note Purchase Agreement (11/17/97) Schedule 1A - Form of Note Schedule 3B(ii) - Opinion Form for Baker, Donelson Schedule 3B(xii) - Form of REIT Guaranty Schedule 6C(3) - Existing Investments Schedule 6C(12) - Restrictive Agreements Schedule 8A - List of Subsidiaries Schedule 8G - Existing Agreement that Limit Debt Schedule 8M - Environmental Exceptions Schedule 8S - Labor Exceptions and List of Collective Bargaining Agreements EX-10.11 13 EXHIBIT 10.11 FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT THIS FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT (the "Amendment") is made and entered into as of the 25th day of November, 1998, by and among MID-AMERICA APARTMENTS, L.P., a Tennessee limited partnership (the "Partnership") and MID- AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation (the "REIT"), and THE PRUDENTIAL LIFE INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Prudential"). W I T N E S S E T H: WHEREAS, the Partnership, the REIT and Prudential (collectively, the "Parties") have heretofore entered into that certain Note Purchase Agreement, dated as of November 24, 1997 (the "Note Purchase Agreement"), which set forth the terms and conditions of purchase and sale of the Notes (as defined in the Note Purchase Agreement) (the Note Purchase Agreement and all other documents evidencing, securing or pertaining to the promissory notes referenced therein are hereinafter collectively referred to as the "Loan Documents"); and WHEREAS, the Parties desire to amend the Note Purchase Agreement and the other Loan Documents as set forth herein; and NOW, THEREFORE, for and in consideration of the sum of Ten and No/100ths Dollars ($10.00) in hand paid, the premises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows: 1. MODIFICATION OF NOTE PURCHASE AGREEMENT. The Note Purchase Agreement is hereby modified and amended as follows: 1.1 Schedule 1A [Form of Note] to the Note Purchase Agreement is hereby deleted in its entirety and the Schedule 1A attached hereto is substituted in lieu thereof. 1.2 Except as specifically modified and amended, all of the terms, conditions and provisions of the Note Purchase Agreement shall remain in full force and effect. 2. MODIFICATION OF LOAN DOCUMENTS. The Loan Documents are hereby modified and amended as follows: 2.1 All references to the Note Purchase Agreement in the Loan Documents shall mean the Note Purchase Agreement as modified and amended hereby. 2.2 Except as specifically modified and amended, all of the terms, conditions and provisions of the Loan Documents shall remain in full force and effect. 3. RATIFICATION AND CONSENT BY THE PARTNERSHIP AND THE REIT. Each of the Partnership and the REIT hereby (i) ratifies and affirms all of its obligations under the Note Purchase Agreement as modified and amended hereby; (ii) acknowledges, represents and warrants that the Note Purchase Agreement constitutes a valid and enforceable obligation, as of this date, free from any defenses, setoffs, claims, counterclaims or causes of action of any kind or nature whatsoever by the Partnership and/or the REIT against Prudential or any of Prudential's directors, officers, employees, agents or attorneys; (iii) consents to the modification and amendment of the Loan Documents as set forth herein; (iv) acknowledges that this Amendment does not constitute and shall not be construed as a novation or release of the Note Purchase Agreement; and (v) acknowledges that this Amendment does not constitute and shall not be construed as a novation or release of the other Loan Documents. 4. BINDING AGREEMENT. This Amendment shall be binding upon and shall inure to the benefit of the Parties hereto and their respective heirs, successors, and assigns. 5. ENTIRE AGREEMENT. This Amendment constitutes the entire understanding and agreement of the Parties hereto with respect to the modification of the Note Purchase Agreement and supersedes all prior agreements, understandings, or negotiations regarding said modification. 6. TIME. Time is of the essence of this Amendment and the Partnership and the REIT each hereby acknowledges that all time periods contained in the Note Purchase Agreement and the Loan Documents shall be strictly construed. 7. GEORGIA LAW. This Amendment shall be governed by and interpreted in accordance with the laws of the State of Georgia. 8. COUNTERPARTS. This Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed under seal as of the date first above written. THE PARTNERSHIP: MID-AMERICA APARTMENTS, L.P., a Tennessee limited partnership By: Mid-America Apartment Communities, Inc., a Tennessee corporation, General Partner By: /s/ Simon R. C. Wadsworth Name: Simon R. C. Wadsworth Title: CFO THE REIT: MID-AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation, General Partner By: /s/ Simon R. C. Wadsworth Name: Simon R. C. Wadsworth Title: CFO PRUDENTIAL: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Daniel C. Moore Name: Daniel C. Moore Title: Vice President EX-21.1 14 EXHIBIT 21.1 Listing of subsidiaries of Mid-America Apartment Communities, Inc. MAC II of Delaware, Inc MAC of Delaware, Inc America First Austin Reit, Inc America First Florida Reit Inc America First Sourth Carolina Reit inc America First Tennessee Reit Inc America First Texas Reit Inc MAC of Austin Inc MAC Capital Partners, Inc Mid-America Service Corporation Mid-America Holdings LLC Mid-America Apartments, LP Mid-America Capital Partners, L.P. Mid-America Apartments of Texas LP Mid-America Apartments of Duval LP Mid-America Apartments of Austin LP Mid-America Apartments Stassney Woods LP Mid-America Apartments Runaway Bay LP Mid-America Apartments Travis Station LP MAAC,Tanglewood LP Fairways-Columbia LP Pine Trails Joint Venture LP LP Woodridge Joint Venture LP River Hills Partnership Madison LP LP Jackson LP Woods Post House LP Hidden Lake Ltd. Hidden Oaks Associates Paddock Park Apartments Ltd. Park Walk Apartments Ltd. River Trace Apartments Ltd. River Trace Apartments Phase II Ltd. The Vistas Ltd. Westbury Springs Ltd. Copper Field Apartments, A Limited Partnership Fountain Lakes Apartments Ltd. Paddock Club Brandon, A Limited Partnership Paddock Club Wildewood, A Limited Partnership Paddock Club Columbia Phase II, A Limited Partnership Paddock Club Florence, A Limited Partnership Paddock Club Greenville, A Limited Partnership Paddock Club Huntsville, A Limited Partnership Paddock Club Jacksonville, A Limited Partnership Paddock Club Jacksonville, Phase II, A Limited Partnership Paddock Club Lakeland, A Limited Partnership Paddock Club Lakeland Phase II, A Limited Partnership Paddock Club Tallahassee, A Limited Partnership Paddock Club Tallahassee Phase II, A Limited Partnership Paddock Park Ocala II, A Limited Partnership Southland Station Phase II, A Limited Partnership Three Oaks Ltd. Three Oaks Apartments Phase II Ltd. Towne Lake Hills Apartments, A Limited Partnership Westbury Creek Ltd. Whispering Pines Ltd. Whispering Pines Phase II, Ltd. Whisperwood Associates, A Limited Partnership Whisperwood Spa and Club, A Limited Partnership Wildwood Apartments Ltd Wildwood Apartments Phase II Ltd. Windridge Apartments Ltd. EX-23.1 15 EXHIBIT 23.1 Accountants' Consent The Board of Directors and Shareholders Mid-America Apartment Communities, Inc. We consent to incorporation by reference in the registration statement (No. 33-91416) on Form S-8 and the registration statements (Nos. 33-95734, 33-96852, 333-3274, 333-20221 and 333-34775) on Form S-3 of Mid-America Apartment Communities, Inc. of our report dated March 27, 1998 to the consolidated balance sheets of Mid-America Apartment Communities, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997 and our report dated March 27, 1998 to the financial statement schedule of Mid-America Apartment Communities, Inc., which reports are herein included in the 1997 Annual Report on Form 10-K of Mid-America Apartment Communities, Inc. Our reports refer to the Company's change in its accounting method to capitalize replacement purchases for major appliances and carpet in 1996. /s/ KPMG Peat Marwick LLP Memphis, Tennessee March 30, 1998 -----END PRIVACY-ENHANCED MESSAGE-----